Aaltodoc publication archive (Aalto University institutional repository)
School of Business | Department of Accounting | Accounting | 2016
Thesis number: 14364
The performance of generic strategies after the financial crisis of 2008 in the retail industry
|Title:||The performance of generic strategies after the financial crisis of 2008 in the retail industry|
|Year:||2016 Language: eng|
|Department:||Department of Accounting|
|Index terms:||laskentatoimi; accounting; strategia; strategy; kustannukset; costs; rahoitusmarkkinat; financial markets; kriisi; crisis; vähittäiskauppa; retail trade; pääoma; capital; tuotto; rate of return|
» hse_ethesis_14364.pdf size:2 MB (1135246)
|Key terms:||generic strategies; Porter; differentiation; cost leadership; financial crisis; recession; performance measurement; return on assets; difference-in-differences; DuPont|
The purpose of this thesis is to discover how differentiation and cost leadership strategies have performed after the financial crisis of 2008 in comparison to each other and the control group that does not engage in either strategy. Differentiation refers to selling differentiated, unique produce typically for higher price whereas cost leadership concentrates on selling standardized, low-priced produce. The hypothesis assumes that cost leaders outperform differentiators in the post-crisis period due to declining consumer purchasing power which supports the sales of produce in the lower price range. The objective of this thesis is to provide new information on strategy performance during recession, a current topic which has received little coverage in prior research.
Panel data consists of 197 American and Canadian companies in the retail industry during 2006-2009. The data are derived from WRDS's Compustat database. Company sorting to cost leaders and differentiators relies on theories of the DuPont disaggregation of return on assets (ROA): companies with relatively high asset turnovers were categorized as cost leaders and companies with relatively low asset turnovers as differentiators. Performance in the regression is measured by ROA. The regression analysis is run with OLS using a difference-in-differences method.
The regression analyses fail to provide statistically significant results on differentiators' or cost leaders' performance both before and after the crisis. The regression coefficient analysis suggests that both differentiation and cost leadership strategies have outperformed the control group during the pre-crisis period, with 0.5% and 1.0%-units, respectively. In the post-crisis period, cost leadership outperformed the control group with 0.5%-units while differentiators had a ROA ratio 2.0%-units smaller than that of the control group. Against the findings of prior studies in retail industry, this study suggests differentiation to clearly have underperformed in a recession-economy in comparison to companies with other strategies.
However, due to the lack of statistically significant results, the relationship between strategy and performance remains unclear and is left for future research. The regression did indicate a statistically significant positive correlation between ROA and firm size (2.5%).
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