RETRENCHMENT AMONG SMALL MANUFACTURING FIRMS DURING RECESSION

Empirical evidence suggests that retrenchment enhances a firm's recove ry from declining performance. Identifying exactly when and how to ret rench is the next step in applying retrenchment research to managerial practice. Our research reports in-depth analysis of retrenchment duri ng the past recession and offers guidance to small firms facing the ne xt recession. First, retrenchment is identified as a common but not un iversal response to recession for small firms: over two-thirds of the firms sampled retrenched during the 1990-1991 recession. Second, a the oretical explanation of the priorities placed on the retrenchment of c ertain factors of production is advanced. Retrenchment is best underta ken on factor. that are easily traded on markets and that lack ''asset specificity'' as transaction-cost scholars have defined the term. Emp irical findings based upon a survey of U.S. small manufacturing busine sses support the theoretical hypotheses.