Keep Calm and Carry On: An empirical study of how firms can build resilience towards supply chain disruptions in a globalised world

Abstract: Supply chains are navigating through an evolving environment where an increasing number of disruptions occur, in magnitudes reinforced by globalisation. Covid-19 revealed the vulnerability inherent in the interconnected global supply chain networks and unveiled the unpreparedness of firms to effectively manage the disruption's adverse effects. In the aftermath of Covid-19, firms have demonstrated an unprecedented willingness to build resilience. This study therefore addresses the issue of building resilience in the dynamic environment. Firstly, employing the difference-in-difference model, our findings affirm the prevailing notion in the literature that demonstrated resilience can enhance firms' ability to withstand subsequent supply chain disruptions, as evident during the ones that followed the Tohoku Earthquake and Tsunami in 2011 and the US-China Trade War in 2018. Although this effect could not be confirmed for the supply chain disruption induced by Covid-19. Our findings thus confirm the prevalence of distinct challenges for supply chains in the evolving environment that Covid-19 unfolded in. Secondly, using a cross-sectional regression we find that during the supply chain disruption that followed Covid-19, low leverage, a restricted cash balance, and a shortened Cash Conversion Cycle enhanced resilience. Our study thus underscores the potential for firms to enhance resilience in the face of the evolving global environment by adopting these financial policies.