Campus Units

Finance

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

9-2-2019

Journal or Book Title

Managerial and Decision Economics

Volume

40

Issue

7

First Page

772

Last Page

786

DOI

10.1002/mde.3040

Abstract

The temporary shutdown condition provides guidance on dealing with a serious transitory downturn in demand. The traditional condition says managers should stop production when revenues fall below avoidable costs. This condition is flawed because it ignores how lost human capital and reputational damage harm future profits. As a consequence, firms may optimally operate with losses far larger than stipulated by the traditional condition. We provide the first broad empirical analysis of the temporary shutdown decision, focusing on the Great Recession. We show that large operating losses were common and temporary shutdowns were exceedingly rare, even among very small public firms.

Comments

This accepted article is published as Brown, J.R., Carpenter, R., Petersen, B., The Temporary Shutdown Decision: Lessons from the Great Recession, Managerial and Decision Economics,2019; 40(7);772-786. doi: 10.1002/mde.3040 . Posted with permission.

Copyright Owner

John Wiley & Sons, Ltd.

Language

en

File Format

application/pdf

Available for download on Thursday, September 02, 2021

Published Version

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