IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v14y2021i10p499-d658899.html
   My bibliography  Save this article

The Effect of Risk, R&D Intensity, Liquidity, and Inventory on Firm Performance during COVID-19: Evidence from US Manufacturing Industry

Author

Listed:
  • Jack Clampit

    (Department of Management and Marketing, Texas A&M University-Corpus Christi, Corpus Christi, TX 78412, USA)

  • Dinesh Hasija

    (Department of Management and Marketing, Augusta University, Augusta, GA 30912, USA)

  • Michael Dugan

    (Department of Management and Marketing, Augusta University, Augusta, GA 30912, USA)

  • John Gamble

    (Department of Management and Marketing, Texas A&M University-Corpus Christi, Corpus Christi, TX 78412, USA)

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.

Suggested Citation

  • Jack Clampit & Dinesh Hasija & Michael Dugan & John Gamble, 2021. "The Effect of Risk, R&D Intensity, Liquidity, and Inventory on Firm Performance during COVID-19: Evidence from US Manufacturing Industry," JRFM, MDPI, vol. 14(10), pages 1-16, October.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:10:p:499-:d:658899
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/14/10/499/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/14/10/499/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Strömberg, 2007. "Natural Disasters, Economic Development, and Humanitarian Aid," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 199-222, Summer.
    2. Fletcher, Jonathan, 2000. "On the conditional relationship between beta and return in international stock returns," International Review of Financial Analysis, Elsevier, vol. 9(3), pages 235-245.
    3. Jacquemin, Alexis P & Berry, Charles H, 1979. "Entropy Measure of Diversification and Corporate Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 359-369, June.
    4. Justin J. P. Jansen & Frans A. J. Van Den Bosch & Henk W. Volberda, 2006. "Exploratory Innovation, Exploitative Innovation, and Performance: Effects of Organizational Antecedents and Environmental Moderators," Management Science, INFORMS, vol. 52(11), pages 1661-1674, November.
    5. Hayakawa, Kazunobu & Matsuura, Toshiyuki & Okubo, Fumihiro, 2015. "Firm-level impacts of natural disasters on production networks: Evidence from a flood in Thailand," Journal of the Japanese and International Economies, Elsevier, vol. 38(C), pages 244-259.
    6. Bahadır Yüzbaşı & S. Ejaz Ahmed, 2020. "Ridge Type Shrinkage Estimation of Seemingly Unrelated Regressions And Analytics of Economic and Financial Data from “Fragile Five” Countries," JRFM, MDPI, vol. 13(6), pages 1-19, June.
    7. Ibrahim Yousef & Hanada Almoumani & Ihssan Samara, 2020. "The Impact of Internationalization of the Boardroom on Capital Structure," JRFM, MDPI, vol. 13(12), pages 1-15, December.
    8. Aluisius Hery Pratono, 2018. "Does firm performance increase with risk-taking behavior under information technological turbulence?," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 19(4), pages 361-378, August.
    9. David J Ravenscraft & William F Long, 1993. "LBOs, Debt And R&D Intensity," Working Papers 93-3, Center for Economic Studies, U.S. Census Bureau.
    10. Ozili, Peterson & Arun, Thankom, 2020. "Spillover of COVID-19: Impact on the Global Economy," MPRA Paper 99317, University Library of Munich, Germany.
    11. Nickel, Manuel Núñez & Rodriguez, Manuel Cano, 2002. "A review of research on the negative accounting relationship between risk and return: Bowman's paradox," Omega, Elsevier, vol. 30(1), pages 1-18, February.
    12. Masaaki Kotabe & Srini S Srinivasan & Preet S Aulakh, 2002. "Multinationality and Firm Performance: The Moderating Role of R&D and Marketing Capabilities," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(1), pages 79-97, March.
    13. Archibugi, Daniele & Filippetti, Andrea & Frenz, Marion, 2013. "Economic crisis and innovation: Is destruction prevailing over accumulation?," Research Policy, Elsevier, vol. 42(2), pages 303-314.
    14. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    15. Giulio Cainelli & Andrea Fracasso & Giuseppe Vittucci Marzetti, 2018. "Natural Disasters and Firm Resilience in Italian Industrial Districts," Advances in Spatial Science, in: Fiorenza Belussi & Jose-Luis Hervas-Oliver (ed.), Agglomeration and Firm Performance, pages 223-243, Springer.
    16. Jeffrey M. Wooldridge, 2003. "Cluster-Sample Methods in Applied Econometrics," American Economic Review, American Economic Association, vol. 93(2), pages 133-138, May.
    17. Kuo-Jung Lee & Su-Lien Lu & You Shih, 2018. "Contagion Effect of Natural Disaster and Financial Crisis Events on International Stock Markets," JRFM, MDPI, vol. 11(2), pages 1-25, March.
    18. Grzegorz Zimon & Hossein Tarighi, 2021. "Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland," JRFM, MDPI, vol. 14(4), pages 1-17, April.
    19. Stav Fainshmidt & Lucas Wenger & Amir Pezeshkan & Mark R. Mallon, 2019. "When do Dynamic Capabilities Lead to Competitive Advantage? The Importance of Strategic Fit," Journal of Management Studies, Wiley Blackwell, vol. 56(4), pages 758-787, June.
    20. Róbert Oravský & Peter Tóth & Anna Bánociová, 2020. "The Ability of Selected European Countries to Face the Impending Economic Crisis Caused by COVID-19 in the Context of the Global Economic Crisis of 2008," JRFM, MDPI, vol. 13(8), pages 1-17, August.
    21. HoWook Shin & Seung-Hyun Lee, 2019. "Firm resource stock, resource complementarity, and the heterogeneity in resource value," Asia Pacific Journal of Management, Springer, vol. 36(3), pages 661-686, September.
    22. Park, YoungWon & Hong, Paul & Roh, James Jungbae, 2013. "Supply chain lessons from the catastrophic natural disaster in Japan," Business Horizons, Elsevier, vol. 56(1), pages 75-85.
    23. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
    24. Yasuyuki Todo & Kentaro Nakajima & Petr Matous, 2015. "How Do Supply Chain Networks Affect The Resilience Of Firms To Natural Disasters? Evidence From The Great East Japan Earthquake," Journal of Regional Science, Wiley Blackwell, vol. 55(2), pages 209-229, March.
    25. Chaofeng Tang & Kentaka Aruga, 2021. "Effects of the 2008 Financial Crisis and COVID-19 Pandemic on the Dynamic Relationship between the Chinese and International Fossil Fuel Markets," JRFM, MDPI, vol. 14(5), pages 1-11, May.
    26. Galina Shirokova & Liudmila Ivvonen & Elena Gafforova, 2019. "Strategic Entrepreneurship in Russia during Economic Crisis," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 13(3), pages 62-76.
    27. I. N. Fisher & G. R. Hall, 1969. "Risk and Corporate Rates of Return," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(1), pages 79-92.
    28. Osiyevskyy, Oleksiy & Shirokova, Galina & Ritala, Paavo, 2020. "Exploration and exploitation in crisis environment: Implications for level and variability of firm performance," Journal of Business Research, Elsevier, vol. 114(C), pages 227-239.
    29. Joon Mo Ahn & Letizia Mortara & Tim Minshall, 2018. "Dynamic capabilities and economic crises: has openness enhanced a firm's performance in an economic downturn?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(1), pages 49-63.
    30. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    31. Angelika Kantor & Jakub Kubiczek, 2021. "Polish Culture in the Face of the COVID-19 Pandemic Crisis," JRFM, MDPI, vol. 14(4), pages 1-14, April.
    32. Paul M. Vaaler & Gerry McNamara, 2004. "Crisis and Competition in Expert Organizational Decision Making: Credit-Rating Agencies and Their Response to Turbulence in Emerging Economies," Organization Science, INFORMS, vol. 15(6), pages 687-703, December.
    33. Tokui, Joji & Kawasaki, Kazuyasu & Miyagawa, Tsutomu, 2017. "The economic impact of supply chain disruptions from the Great East-Japan earthquake," Japan and the World Economy, Elsevier, vol. 41(C), pages 59-70.
    34. Anil Nair & Elzotbek Rustambekov & Michael McShane & Stav Fainshmidt, 2014. "Enterprise Risk Management as a Dynamic Capability: A test of its effectiveness during a crisis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(8), pages 555-566, December.
    35. Richard Fabling & Arthur Grimes & Levente Timar, 2019. "Natural selection: firm performance following a catastrophic earthquake," Chapters, in: Resilience and Urban Disasters, chapter 2, pages 30-50, Edward Elgar Publishing.
    36. Imhof, Michael J. & Seavey, Scott E., 2014. "Corporate risk-taking, firm value and high levels of managerial earnings forecasts," Advances in accounting, Elsevier, vol. 30(2), pages 328-337.
    37. Eggers, Fabian, 2020. "Masters of disasters? Challenges and opportunities for SMEs in times of crisis," Journal of Business Research, Elsevier, vol. 116(C), pages 199-208.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mahdi Salehi & Grzegorz Zimon & Ali Reza Ghaderi & Zinab Ahmed Hasan, 2022. "The Relationship between Prevention and Panic from COVID-19, Ethical Principles, Life Expectancy, Anxiety, Depression and Stress," IJERPH, MDPI, vol. 19(10), pages 1-24, May.
    2. Grzegorz Zimon & Joanna Nakonieczny & Katarzyna Chudy-Laskowska & Magdalena Wójcik-Jurkiewicz & Konrad Kochański, 2021. "An Analysis of the Financial Liquidity Management Strategy in Construction Companies Operating in the Podkarpackie Province," Risks, MDPI, vol. 10(1), pages 1-15, December.
    3. Batara Surya & Hernita Hernita & Agus Salim & Seri Suriani & Iwan Perwira & Yulia Yulia & Muhlis Ruslan & Kafrawi Yunus, 2022. "Travel-Business Stagnation and SME Business Turbulence in the Tourism Sector in the Era of the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(4), pages 1-37, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Osiyevskyy, Oleksiy & Shirokova, Galina & Ritala, Paavo, 2020. "Exploration and exploitation in crisis environment: Implications for level and variability of firm performance," Journal of Business Research, Elsevier, vol. 114(C), pages 227-239.
    2. Carolina Rojas-Córdova & Amanda J. Williamson & Julio A. Pertuze & Gustavo Calvo, 2023. "Why one strategy does not fit all: a systematic review on exploration–exploitation in different organizational archetypes," Review of Managerial Science, Springer, vol. 17(7), pages 2251-2295, October.
    3. Hayato Kato & Toshihiro Okubo, 2022. "The Resilience of FDI to Natural Disasters Through Industrial Linkages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(1), pages 177-225, May.
    4. Caloghirou, Yannis & Giotopoulos, Ioannis & Kontolaimou, Alexandra & Korra, Efthymia & Tsakanikas, Aggelos, 2021. "Industry-university knowledge flows and product innovation: How do knowledge stocks and crisis matter?," Research Policy, Elsevier, vol. 50(3).
    5. Altintas, Gulsun & Ambrosini, Véronique & Gudergan, Siegfried, 2022. "MNE dynamic capabilities in (un)related diversification," Journal of International Management, Elsevier, vol. 28(1).
    6. Wenke, Kathrin & Zapkau, Florian B. & Schwens, Christian, 2021. "Too small to do it all? A meta-analysis on the relative relationships of exploration, exploitation, and ambidexterity with SME performance," Journal of Business Research, Elsevier, vol. 132(C), pages 653-665.
    7. Mavroudi, Eva & Kesidou, Effie & Pandza, Krsto, 2023. "Effects of ambidextrous and specialized R&D strategies on firm performance: The contingent role of industry orientation," Journal of Business Research, Elsevier, vol. 154(C).
    8. Pilar Bernal & Juan P. Maicas & Pilar Vargas, 2016. "Exploration, exploitation and innovation performance: Disentangling environmental dynamism," Documentos de Trabajo dt2016-03, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    9. Jarle Aarstad & Olav Andreas Kvitastein & Marte C. W. Solheim, 2021. "External shocks and enterprises' dynamic capabilities in a time of regional distress," Growth and Change, Wiley Blackwell, vol. 52(4), pages 2342-2363, December.
    10. Ju, Xiaowei & Wang, Guanhua, 2023. "How do network ties affect firm performance growth and its variability? The mediating roles of exploratory and exploitative knowledge utilization," Journal of Business Research, Elsevier, vol. 160(C).
    11. Wang, Pengfei & Van De Vrande, Vareska & Jansen, Justin J.P., 2017. "Balancing exploration and exploitation in inventions: Quality of inventions and team composition," Research Policy, Elsevier, vol. 46(10), pages 1836-1850.
    12. Sunkee Lee & Philipp Meyer-Doyle, 2017. "How Performance Incentives Shape Individual Exploration and Exploitation: Evidence from Microdata," Organization Science, INFORMS, vol. 28(1), pages 19-38, February.
    13. Johannes Luger & Sebastian Raisch & Markus Schimmer, 2018. "Dynamic Balancing of Exploration and Exploitation: The Contingent Benefits of Ambidexterity," Organization Science, INFORMS, vol. 29(3), pages 449-470, June.
    14. Avimanyu Datta, 2016. "Antecedents To Radical Innovations: A Longitudinal Look At Firms In The Information Technology Industry By Aggregation Of Patents," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 20(07), pages 1-31, October.
    15. Liu, Zhiqiang & Yan, Miao & Fan, Youqing & Chen, Liling, 2021. "Ascribed or achieved? The role of birth order on innovative behaviour in the workplace," Journal of Business Research, Elsevier, vol. 134(C), pages 480-492.
    16. Kashiwagi , Yuzuka & Todo , Yasuyuki, 2020. "Propagation of Positive Effects of Postdisaster Policies through Supply Chains: Evidence from the Great East Japan Earthquake and Tsunami," ADB Economics Working Paper Series 604, Asian Development Bank.
    17. Ioannis Giotopoulos & Alexander S. Kritikos & Aggelos Tsakanikas, 2023. "A lasting crisis affects R&D decisions of smaller firms: the Greek experience," The Journal of Technology Transfer, Springer, vol. 48(4), pages 1161-1175, August.
    18. Mammassis, Constantinos S. & Kostopoulos, Konstantinos C., 2019. "CEO goal orientations, environmental dynamism and organizational ambidexterity: An investigation in SMEs," European Management Journal, Elsevier, vol. 37(5), pages 577-588.
    19. Antoine Berthou & Lionel Fontagné, 2013. "How do Multiproduct Exporters React to a Change in Trade Costs?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(2), pages 326-353, April.
    20. Orsatti, Gianluca & Pezzoni, Michele & Quatraro, Francesco, 2017. "Where Do Green Technologies Come From? Inventor Teams’ Recombinant Capabilities and the Creation of New Knowledge," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201711, University of Turin.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:14:y:2021:i:10:p:499-:d:658899. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.