Abstract
Because prior knowledge may not generalize to the COVID-19 setting, scholars are racing to test the efficacy of existing theoretical frameworks during COVID-19. Most business studies are conceptual or surveys of damage. The main purpose of the paper is to extend the forthcoming stream that tests firm performance by examining it during COVID-19. We examine the sales growth of 1298 US manufacturers during COVID-19 compared to their pre-COVID-19 baselines. Riskier firms with higher R&D intensities performed better during COVID-19, especially when cash-to-inventory levels were low. This study is among the first to empirically identify actionable predictors of firm performance during COVID-19 via a quantitative analysis of strategies and performance outcomes. Understanding what type of firms perform at higher levels during COVID-19 will help decision makers make more informed decisions moving forward. Employing ordinary least squares (OLS) regression to test our hypotheses, our findings suggest that R&D intensive firms should pivot tactically regarding current asset management, if needed, but not strategically, while prioritizing inventory versus cash retention. The positive effect of inventory versus cash extends theory by suggesting a new boundary condition related to pandemics that reverses the positive link between cash and performance found during crises with more conventional levels of turbulence. Our most important contribution, however, is practical, via the testing of predictors that can help firms during COVID-19. For example, we found that firms with higher levels of operating risk experienced 60 percent more sales growth than risk-averse firms. This knowledge that risk-taking predicted performance during COVID-19 (especially when coupled with a focus on R&D intensity and inventory level) may encourage those that can adopt less risk-averse strategies, while others focus on tactical adjustments or mitigative measures during COVID-19 and future black swan events.
Highlights
On 9 January 2020, the World Health Organization announced the existence of a novel coronavirus
Because the U.S manufacturing industry is a key actor within complex global supply chains, and because COVID-19 is more disruptive than many conventional crises, our findings extend the international business and crisis literatures by testing the efficacy of firm performance predictors during a global pandemic, while examining liquidity-versus-inventory tradeoffs
While the crisis literature is clear with respect to the benefits of being large and having broad resource bases, there seems to be tension between safety-oriented and less risk-averse approaches
Summary
On 9 January 2020, the World Health Organization announced the existence of a novel coronavirus. COVID-19 was formally recognized as a global crisis, and its ultimate toll on the global economy was severe and pervasive. Ozili and Arun (2020) documented its impact from January to April 2020, noting that global stock markets erased USD 6 trillion of wealth during one week in February alone, before describing supply chain shutdowns and recessions projected to be as severe as 2007–2008’s global financial crisis. In the USA, most businesses experienced sizable demand drops, 36% experienced supply shortfalls, 11% had trouble moving goods from production to markets, and a majority told employees to stay at home at least once, with roughly half of these employees losing salaries and employer-sponsored health insurance (US Bureau of Labor Statistics 2020)
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