Strategic Cuts and Economic Cycles: Unpacking the impact of Retrenchment on Firm Performance
DOI:
https://doi.org/10.47067/ramss.v8i4.583Keywords:
Retrenchment Strategy, Macroeconomic Volatility, Emerging Markets, Organizational Adaption, Contingency Theory, Strategic TurnaroundAbstract
The study examines the impact of retrenchment strategy on the performance of the firm contextualizing economic volatility. Retrenchment is a famous turnaround strategy for the firms facing crisis. However, there is scarcity of literature about the effectiveness of retrenchment in an environment where macroeconomic instability is sustained. This scarcity is more prevalent in emerging economies. Results has been analyzed using the sample of 56 non-financial firms listed on Pakistan stock exchange (PSX) during 2010 to2022. For estimation purpose pooled OLS and fixed effects methods are used. In addition, hierarchical regression analysis is used to investigate the moderating impact of macroeconomic variables. The results indicate that the retrenchment strategy increases firm performance. However, under deteriorating macroeconomic conditions particularly in declining GDP and rising inflation the effectiveness of retrenchment becomes negative. Hence, it emphasizes that turnaround strategies are contingent especially in the context of emerging economies. Thus, challenging the universal applicability of turnaround strategies. The study also emphasizes the role of external economic environments in shaping organizational decision making and outcome.
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