Don’t Throw the Baby Out With the Bathwater: Firm Response to Downstream Product Shocks

Phares Akari, Chirantan Chatterjee and Matthew Higgins

No 32703, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore how firms respond to downstream product shocks. We find that affected firms increase R&D and make additional safety-related investments in their existing assets-in-place. These investments vary with firm capabilities and across shock severity. Competitors appear to vicariously learn and also engage in similar upstream investments. We present evidence that these upstream investments have important performance implications. First, these investments are positively related to transition probabilities and approval rates for products that received them. Second, these investments are related to a decrease in the intensity and rate of future downstream product shocks. Surprisingly, however, these investments appear to have limited impact on mitigating the negative demand response caused by these shocks.

JEL-codes: L10 L51 L65 M21 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-ind and nep-tid
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Published as Phares Auda Lucas Akari & Matthew J. Higgins & Chirantan Chatterjee, 2024. "Don’t Throw the Baby Out With the Bathwater: Firm Response to Downstream Product Shocks," Academy of Management Proceedings, vol 2024(1).

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