Working Capital Behavior of Firms during an Economic Downturn: An Analysis of the Financial Crisis Era

In times of crisis, cash and liquidity play an essential role. This paper analyzes the working capital measures over the course of a business cycle. We examine (1) how companies behave in economic downturns regarding their working capital components and (2) whether firms with higher financial constraints behave differently in economic downturns regarding their working capital components. The analyses were conducted with descriptive statistics and generalized linear mixed-effects modeling. Our dataset consists of 2111 stock-listed firms and 10,555 observations spread over the period of five years during the financial crisis era. The findings indicate that days sales outstanding and shorter days inventory held are related to better financial performance while days payable outstanding had no observable effect. Furthermore, financially constrained firms have shorter days sales outstanding than average firms. In economic downturns, firms seem to reduce both working capital and fixed investments to asset ratios. The financially constrained firms pushed down their fixed investments ratio more aggressively than average firms while, in contrast, the financially strongest firms pushed down the working capital to asset ratio in comparison to average firms. Interestingly, neither the cash conversion cycle, days payable outstanding, nor company performance or fixed investments to asset ratios fully returned to the pre-shock level. The behavior of non-financially constrained firms, which also perform better, indicates a stronger supply chain orientation than that of average firms. This might indicate that the supply chain-oriented view of working capital management could provide a more favorable and resilient alternative to the prevailing self-orientation.

International trade resilience and the Covid-19 pandemic

The Covid-19 pandemic represents a low-probability, high-impact systemic risk that has severely disrupted international trade, reshaping the patterns of globalization. Drawing from the concept of supply chain resilience, which involves both the ability of a system to withstand an impact (robustness) and recover from it (responsiveness), we investigate country-level trade resilience during the 1st wave of the pandemic. By employing Fuzzy-set Qualitative Comparative Analysis (fsQCA), we identify configurations of country-level factors, i.e., country profiles, based on their effectiveness in engendering trade resilience. These factors include social and economic globalization, logistics performance, healthcare preparedness, national government response, and income level. The results show how these factors coalesced to strengthen (or weaken) international trade resilience, contributing to a holistic understanding of the impact of the pandemic on international trade. The findings inform the post-Covid-19 debate on international trade, with implications for managers and policymakers.

Financially distressed suppliers: exit, neglect, voice or loyalty?

Purpose

Major crises such as the global financial crisis 2007–08 or the COVID-19 crisis increase the level and likelihood of supplier financial distress. This research expands the understanding of how cooperatively, respectively, uncooperatively buying firms might respond to suppliers who suffer from financial distress in the course of major crises.

Design/methodology/approach

The authors build on a collaborative project with a German automotive OEM, analyze OEM internal “financial quick check data”, questionnaire data and longitudinal supplier financial data and apply regression, mediation and difference-in-difference estimation analyses.

Findings

The results show that the stronger the dependence on the distressed supplier, the more cooperative the buying firm's response. Furthermore, a more cooperative response of the buying firm has a strong positive influence on the suppliers' financial performance and hence recovery from the distress situation. Insights from supplier financial distress in the course of the financial crisis 2007–2008 can serve as learnings for the COVID-19 crisis.

Research limitations/implications

The study fills a gap in the scholarly literature on “response to risk incidents” and response formation. Resource dependence theory and resource dependence dynamics offer a strong rationale for the type of response buying firms are likely to choose.

Practical implications

Besides offering the first menu of response options, this study can help practitioners in figuring out the most appropriate response to distressed suppliers. The findings can assist buying firms in their decisions how to deal with suppliers during major economic and financial crises.

Originality/value

This research is the first to conceptualize buying firms' response options to financially distressed suppliers, to investigate the influence of dependence on buying firm's response and to reveal the consequences of the buying firm's response for the supplier's financial recovery.

The effect of cultural value orientations on responses to supply-side disruption

Purpose

Past research has shown that culture has significant effects on people's evaluation of and responses to risk. Despite this important role, the supply chain risk literature has been silent on this matter. The purpose of this paper is to examine the impact of cultural value orientations on managerial perception of and responses to a supply disruption risk.

Design/methodology/approach

The authors conduct a scenario-based experiment to investigate the effect of cultural value orientations – i.e. individualism-collectivism and uncertainty avoidance – on individuals' perception of risk and supplier switching intention in the face of a supply disruption.

Findings

The findings highlight the negative effect of individualism-collectivism on disruption risk perception and switching intention in high uncertain circumstances. However, these relationships are non-significant in relatively less uncertain situations. Moreover, the findings show that the impact of uncertainty avoidance on risk perception and supplier switching is positive and significant in both low and high uncertain circumstances.

Originality/value

Extant research has traditionally assumed that when confronted with disruption risks, managers make decisions using an economic utility model, to best serve the long-term objectives of the firm. This paper draws from advances of behavioural research to show that cultural value orientations influence such decisions through a mediating mechanism of subjective risk perception.

Supply chains under resource pressure: Strategies for improving resource efficiency and competitive advantage

Purpose

The purpose of this paper is to investigate the implications of supply chain strategies that manufacturing companies can use to minimise or overcome natural resource scarcity, and ultimately improve resource efficiency and achieve competitive advantage. The relationship between resource efficiency and competitive advantage is also explored.

Design/methodology/approach

The proposed research model draws on resource dependence theory. Data were collected from 183 logistics, purchasing, sustainability and supply chain managers from various manufacturing companies and analysed by applying the partial least squares structural equation modelling technique.

Findings

The results indicate that both buffering and bridging strategies improve resource efficiency; however, only bridging strategies seem to lead to firm’s competitive advantage in terms of ownership and accessibility to resources. The relationship between resource efficiency and competitive advantage is not supported.

Research limitations/implications

Future research could confirm the robustness of these findings by using a larger sample size and taking into account other supply chain members.

Practical implications

This research provides guidance to managers faced with the growing risk of resource scarcity to achieve a resource efficient supply chain and an advantage over competitors.

Originality/value

Studies have explored the appropriate strategies for minimising dependencies caused by the scarcity of natural resources in the field of supply chain management; however, there is limited empirical work on investigating the impact of these strategies on resource efficiency and competitive advantage.

Content analysis in SCM research: past uses and future research opportunities

Purpose

Content analysis is a methodology that has been used in many academic disciplines as a means to extract quantitative measures from textual information. The purpose of this paper is to document the use of content analysis in the supply chain literature. The authors also discuss opportunities for future research.

Design/methodology/approach

The authors conduct a literature review of 13 leading supply chain journals to assess the state of the content analysis-based literature and identify opportunities for future research. Additionally, the authors provide a general schema for and illustration of the use of content analysis.

Findings

The findings suggest that content analysis for quantitative studies and hypothesis testing purposes has rarely been used in the supply chain discipline. The research also suggests that in order to fully realize the potential of content analysis, future content analysis research should conduct more hypothesis testing, employ diverse data sets, utilize state-of-the-art content analysis software programs, and leverage multi-method research designs.

Originality/value

The current research synthesizes the use of content analysis methods in the supply chain domain and promotes the need to capitalize on the advantages offered by this research methodology. The paper also presents several topics for future research that can benefit from the content analysis method.