Organizational adaptation in an economic shock: The role of growth reconfiguration

Authors

  • Abhirup Chakrabarti

    Corresponding author
    1. Strategy and Organizations, Queen's School of Business, Queen's University, Kingston, Ontario, Canada
    • Correspondence to: Abhirup Chakrabarti, Queen's School of Business Goodes Hall 143 Union Street Kingston, Ontario K7L 3N6 Canada. E-mail: abhirup.chakrabarti@queensu.ca

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Abstract

Studies suggest that firms navigating an economic shock can adapt and improve performance by targeting perceived growth opportunities. A puzzle, however, is that an economic shock increases environmental uncertainty and therefore the risk associated with growth reconfiguration. This study finds that growth reduced performance and increased the risk of firm failure during the Asian economic shock of 1997. Growing firms differed in the extent to which they were able to mitigate the constraints imposed by the shock. However, the presence of developed external institutions played a more systematic role in their adaptation than did organizational resources represented by financial slack or product diversification. The deliberate attempt to reconfigure augmented the adverse effect of the economic shock on firm performance and survival. Copyright © 2014 John Wiley & Sons, Ltd.

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