US Corporate Responses to the “Great Recession” (2007-2009): Evidence from the Entrails
S&P 500, Great Recession, logistic regression, financial crisis
Accounting | Finance and Financial Management
We analyze the financial statements of S&P500 firms to identify their response to the US led Financial Crisis – the Great Recession of 2007-2009. The unprecedented erosion of asset values, job losses and the government response to avoid another great depression resulted in great pressures on the population and the firms in the economy. Using the largest of the firms in the US – the S&P500 companies – we evaluate how their investment and financing policies as well as operations changed in response to the New Normal environment they found themselves. We identified significant differences in key operating and financing parameters for the firms after the crisis. From a LOGIT analysis of the ratios, we could classify the pre and post crisis firms correctly confirming the difference in the pre and post meltdown firms. Gross margin, Tobin’s Q, capital intensity, total returns, and capital turnover ratio were all significantly different between pre and post crisis periods. The results are statistically significant and interesting. We find that they behaved as might be anticipated from corporate finance prescriptions and conclude that overall US corporate response was rational.
Journal of Accounting and Finance
Ramakrishnan, K. and S. Ragothaman. (2014). US Corporate Responses to the Great Recession (2007-2009): Evidence from the Entrails. Journal of Accounting and Finance. 14(6): 133-141.