Business cycle management and firm performance

Abstract

Purpose Business cycles strongly influence corporate sales and profits, yet strategy research largely ignores the possibility that corporate management practices related to the business cycle influence profitability. This paper aims to offer initial empirical support for the view that high peformance firms use a variety of business cycle management (BCM) practices that low performance firms do not. Design/methodology/approach This exploratory study examines the association of firm performance with business cycle management behaviors identified in the prescriptive literature and further developed from a set of case analyses. The empirical analysis uses a matched sample of 35 pairs of high vs low performers from the S&P 500. Findings Discriminant and conditional logit analyses provide preliminary evidence that business cycle‐sensitive behaviors such as countercyclical hiring and investment associate positively with firm performance. Research limitations/implications Future research should use larger data sets and strictly archival data to overcome the limitations of the small sample size and data coding with some subjective elements. Practical implications This research suggests a variety of business cycle related practices dealing with staffing, capital investment, acquisitions and divestitures, capital financing, credit policy, pricing, and advertising may improve firm performance. Originality/value This is the first paper to offer evidence of the impact of business cycle related practices across a range of practices and industries.

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