Empirical Research On External Uncertainty,firm Strategy And Operational Efficiency

The rapidly changing and complex environment leads to higher demand uncertainty.Firms need to implement strategies to deal with external demand uncertainty.In the face of constant pressures on cost and quality and changing demands,it is crucial for firms to make the right strategies at the right time to improve cost management and operational management.Demand uncertainty is exogenous to the firm and is not controlled by the firm,but managers can deal with it by adopting different internal and external strategies.This paper investigates how firms respond to the external environment and implement strategies from three aspects of financial strategies,internal operation management strategies and external supply chain strategies.The first study discusses the external demand uncertainty and firm's financial resource strategy.Although intuitively,financial slack is expected to provide firms with a buffer capacity to cope with the changing demand environment,principalagent theory suggests that that financial slack may cause agency problems,thus magnifying the adverse impact of demand uncertainty on operating efficiency.Based on the sample of 1,249 U.S.public firms from 1990 to 2019,we find that demand uncertainty would hurt firms' operational efficiency,and this negative effect is more pronounced for firms with higher financial slack,which confirms the financial slack's risk-exacerbating role.Misunderstanding its role may lead an enterprise to make flawed decisions about its internal resources.The second study focuses on the interaction of external demand uncertainty and firms' internal supply chain strategies.Previous accounting literature argued that demand uncertainty would have an impact on the cost structure,resulting in a more flexible or more rigid cost structure.But it ignores the distortion of demand uncertainty within the firm.External demand volatility may be distorted through the transmission in different functions of the internal supply chain,resulting in an internal bullwhip effect.The internal bullwhip effect plays a key role in the relationship between external demand uncertainty and the cost structure because it determines the degree to which the impact of external demand uncertainty is transmitted within a firm.However,there are few studies on this link.Using data from 7,179 U.S.public firms from 1990 to 2019,we find that whether demand uncertainty leads to more flexible or more rigid cost structures in different industries,the internal bullwhip ratio will aggravate this effect.The heterogeneity between different industries may be due to the different importance of congestion cost and idle cost.Our findings suggest that cost structure research must consider both external and internal risk factors.The third study focuses on firms' external supply chain strategies,which are supposed to be useful strategies to cope with supply and demand uncertainties.Due to limited resources,firms need to choose whether to integrate forwards or backward.Furthermore,firms at different positions in the supply chain have different businesses,resources,information and uncertainty types.Vertical integration in different directions may have heterogeneous impacts on operational efficiency.We calculate the index based on the manually cleared business data.The final sample includes 1,816 firms from 2007 to 2016.The empirical results show that:(1)Unilateral forward integration and unilateral backward integration have a significant positive impact on operational efficiency,respectively.(2)Considering the situation that both forward integration and backward integration exist,forward integration still significantly increases the operational efficiency,but the positive impact of backward integration on operational efficiency is weakened.(3)For firms located closer to the supply chain downstream,the positive relationship of forward integration and operational efficiency is more pronounced,while backward integration has no obvious effect on the improvement of operational efficiency for those firms.On the contrary,the positive relationship between backward integration and operational efficiency for firms located closer to the upstream is more pronounced.This paper contributes to the literature from the following four aspects.First,we find a counterintuitive role of financial slack,helping firms re-evaluate the value of financial slack.Second,it contributes to the cost structure literature by introducing the bullwhip effect at the firm level and emphasizing the important role of internal supply chain management in the decision-making of cost structure.Third,the existing secondary data research about vertical integration rarely distinguishes the direction,and there is limited literature considering the heterogeneity of supply chain positions.Our study increases the granularity of this line of research.Finally,this dissertation is a cross-field research based on strategic management,accounting,corporate finance and OM.Most of the previous related studies only focus on a single subject.This paper combines vertical integration,cost structure,the bullwhip effect,financial slack and systematically analyzes the decision-making behavior of managers,enriching OM literature from a multidisciplinary perspective.