The industry effect and the decision to integrate vertically in a crisis context

ABSTRACT

The objective of this work is twofold: firstly, to study if the characteristics of the industry affect certain financial and strategic decisions of manufacturing firms and, secondly, to determine if the strategy of diversifying the activity through vertical integration generates good financial results in times of crisis, depending on the industry. To this end, an analysis is carried out with panel data from 9,523 firms in the period between 2008 and 2013. The results show that there are different strategies that firms must follow, depending on the industry to which they belong. In sectors with lower operational risk, those firms characterized by greater specificity and better product quality obtained higher profitability. However, in riskier sectors, firms with more specific assets assumed too many risks and in times of crisis have seen their profitability fall. Likewise, it is observed that the decision to integrate vertically has mitigated the weak points of each sector, allowing firms to better weather the economic–financial crisis in which this research is framed.