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To Fail to Prepare is to Prepare to Fail? Firm Decision-Making Styles in Crises

Author

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  • Cho, Jae
  • Kretschmer, Tobias

Abstract

We examine how firm decision-making styles affect firm performance during crises, using the 2000-2001 California energy crisis as a natural experiment. Applying Principal Component Analysis to pre-crisis financial data, we identify two distinct styles: future-oriented, confident, long-term and present-focused, less confident, short-term. Firms characterized by future-oriented, confident and long-term decision-making significantly outperformed their counterparts during the crisis, primarily by reducing production costs through pre-crisis investments in operational flexibility. A difference-in-differences framework, supported by mediation and effect heterogeneity analyses, shows that while flexibility plays a key role, it only partially explains the performance gap. Our findings highlight the strategic value of decision-making styles in shaping firm resilience under external shocks.

Suggested Citation

  • Cho, Jae & Kretschmer, Tobias, 2024. "To Fail to Prepare is to Prepare to Fail? Firm Decision-Making Styles in Crises," CEPR Discussion Papers 19526, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19526
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    File URL: https://cepr.org/publications/DP19526
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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