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

Jae Cho and Tobias Kretschmer

No 19526, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Crisis management; Firm performance (search for similar items in EconPapers)
JEL-codes: D22 D24 M11 (search for similar items in EconPapers)
Date: 2024-09
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