Shadow of trouble: The effect of pre-recession characteristics on the severity of recession impact

The recent financial crisis has heightened the need to understand why some firms are more severely affected by recessions than others and how different firm and industry characteristics affect firms’ vulnerability to such shocks.  To study these questions empirically, we complement secondary financial data with primary data from an extensive questionnaire about the effects of the recent recession distributed to 5000 Norwegian CEOs in late 2010. We find that high pre-recession operating profits make firms less vulnerable to recessions, while high pre-recession growth, pre-recession debt ratio, firm size, share of durable goods and level of vertical product differentiation make firms more vulnerable to recessions. When comparing effect sizes, we find that other characteristics than pre-recession profits are the most important determinants of the severity of recession impact. We argue that these results indicate that recession can cause the shape of fitness landscapes to change.