Economics Insights @ CBS

Creative destruction tends to be a very disruptive and painful way of bringing about change — often so painful that it becomes virtually unsustainable. In many situations such highly destabilizing and painful changes can hurt more than they help. What is needed is a less disruptive approach to change — one that provides for a sustained series of successful changes, enabling firms to adapt to their ever-changing environments without being torn apart. An alternative to creative destruction called creative recombination is described.

We investigate whether the accruals anomaly is a manifestation of the glamour stock phenomenon documented in the finance literature. Value (glamour) stocks, characterized by low (high) past sales growth, high (low) book-to-market (B/M), high (low) earnings-to-price (E/P), and high (low) cash flow-to-price (C/P), are known to earn positive (negative) future abnormal returns. Note that "C" or cash flow is operationalized in the finance literature as earnings adjusted for depreciation.

Despite the obvious importance of understanding how business cycle fluctuations affect both individual companies and whole industries, not much marketing research focuses on the subject. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions generally do not have an equal impact on every industry, nor on all firms in any given industry.