The Dog That Didn't Bark - Long Term Strategies in Times of Recession

We investigate how U.S. companies adjusted their investments in key strategic resources ― i.e., human capital, tangible, and intangible resources ― during the Great Recession of 2007-2009. To obtain exogenous variation in the severity of the recession, we exploit the differential intensity of the house price collapse across U.S. regions, instrumenting changes in house prices with Saiz’ (2010) topological measure of housing supply elasticity.Our findings indicate that during the Great Recession, companies significantly reduced their workforce and capital expenditures. Yet, and this is a remarkable finding, they maintained the same level of investments in R&D and CSR. Referring to the opening quote of our study, this result is a “non-barking dog”―i.e., the interesting finding is not so much what companies did, but rather what they did not do: they did not cut back on R&D and CSR investments, despite the cost-cutting pressures and other disruptions that are inherent in periods of recession.Consistent with our theoretical arguments, these findings suggest that intangible resources such as innovation and stakeholder relations are instrumental in sustaining a competitive advantage during and after recessionary times. In auxiliary analyses, we further document that―although on average firms do not cut their investments in R&D and CSR―firms operating in less R&D-intensive and less CSR-sensitive industries, respectively, are more likely to do so. This result is intuitive, yet it offers additional verification for the mechanisms we argue for in our study. For example, in less R&D-intensive industries, firms’ competitiveness is less likely to depend on their innovative capabilities.Similarly, CSR is less likely to enhance competitiveness in industries in which CSR engagement is less salient. Finally, we examine whether companies that sustain their investments in R&D and CSR perform better once the economy recovers, and we find that they do. Specifically, they achieve higher operating performance—as measured by the return on assets (ROA) and net profit margin (NPM)—in the post-recession years (2010-2011).


Watch below an interview Prof. Ioannou gave to Prof. Karl Moore (The Globe and Mail), discussing the findings of this paper.


My Research

I am a strategy scholar whose research focuses on Sustainability and Corporate Social Responsibility (CSR). More specifically, I seek to understand whether, how, and the extent to which the modern business organization contributes towards building a sustainable future. My academic work evolves around two main themes: a) understanding how investment analysts, and the public equity markets, perceive, evaluate and react to corporate engagement with, and integration of, environmental and social issues into strategy and b) understanding the multiple factors (e.g. institutional, regulatory, behavioural) that may affect, drive or hinder, the corporate decision to adopt environmentally and socially responsible strategies.

Upcoming Events

October 5, 2017

Prof. Ioannou will deliver the prestigious CBGE lecture at FHWien der WKW

October 6, 2017

Prof. Ioannou be a keynote speaker at LBS Worldwide Alumni Celebration in Vienna!

October 16, 2017

Prof. Ioannou will be speaking at the 2017 Global Investors Forum in Switzerland