The Effects of Cost and Asset Retrenchment on Firm Performance: The Overlooked Role of a Firm’s Competitive Environment
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Date
2004-04-01Author
J. L. Morrow
Jr.
Richard A. Johnson
Lowell W. Busenitz
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Abstract
When firms face declining financial performance, research suggests that cost and asset retrenchment can lead to improved performance among poorly performing firms. However, previous studies have largely focused on firms operating in mature industries. This research develops and tests arguments that cost and/or asset retrenchment strategies will have different effects on firm performance in competitive environments characterized as growing and declining. In growth industries, asset retrenchment was positively related to performance improvement while cost retrenchment was unrelated. In declining industries, cost retrenchment was positively related to improved performance while asset retrenchment had a negative effect on firm performance. Implications of these findings for turnaround strategies are discussed.
Citation
Morrow, J. L., Johnson, R. A., & Busenitz, L. W. (2004). The Effects of Cost and Asset Retrenchment on Firm Performance: The Overlooked Role of a Firm’s Competitive Environment. Journal of Management, 30(2), 189-208. doi: 10.1016/j.jm.2003.01.002