Does Competition Make Businesses Resilient?

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Jain, R., Poudel, R., & Rogers, N. (2025). Does Competition Make Businesses Resilient?. Journal of Applied Business and Economics, 27(1). https://doi.org/10.33423/jabe.v27i1.7496

Keywords: business, economics, industry competition, resiliency, exogenous shock, product market-structure, Herfindahl index

Introduction

In today’s unpredictable business world, resilience is key to success. But what makes a company resilient? This study explores how competition within industries impacts business resilience, particularly when facing unexpected events. We use the stock market’s reaction to the September 11, 2001 terrorist attacks as a case study to determine how competition influences a company’s ability to bounce back.

To provide a comprehensive understanding, this paper conducts an extensive literature review on competition and business resilience, presents a robust methodology for analyzing market responses, and discusses the implications of our findings for both the academic community and business practitioners.

Literature Review

Research on business resilience suggests that firms must develop adaptive capabilities to survive in volatile markets. The concept of resilience has been studied in various disciplines, including economics, finance, and strategic management. Prior studies indicate that competitive firms tend to have more robust risk management strategies, diversified revenue streams, and dynamic operational capabilities.

A key measure of market competition is the Herfindahl-Hirschman Index (HHI), which quantifies industry concentration. Previous research has shown that firms in industries with higher HHI values (indicating less competition) tend to be less agile in responding to external shocks (Grullon et al., 2016). Conversely, firms in highly competitive markets are often more innovative and financially prepared for crises (Hou & Robinson, 2006).

Methodology

This study utilizes event study methodology to analyze the stock market reaction following the September 11, 2001 terrorist attacks.

Data Collection

  • Stock Price Data: Daily stock price movements for publicly traded firms were gathered from CRSP (Center for Research in Security Prices).
  • Industry Concentration Data: The Herfindahl Index (HHI) was used to classify industries as either highly competitive or highly concentrated.
  • Firm-Level Financial Indicators: We controlled for variables such as firm size, book-to-market ratio, leverage, and liquidity to isolate the effects of competition on resilience.

Analytical Framework

We applied a market model to calculate abnormal returns (ARs) and cumulative abnormal returns (CARs) before and after the attacks. The model follows the equation:

where:

  • is the abnormal return for firm on day ,
  • is the actual return,
  • is the market return,
  • and are estimated from pre-event window regressions.

We then compared the CARs for firms in highly competitive vs. highly concentrated industries to evaluate the impact of competition on resilience.

Key Findings

  • Businesses in industries with higher competition were more resilient after the crisis.
  • Companies in less competitive (highly concentrated) industries experienced greater financial losses.
  • The Herfindahl Index, a measure of industry concentration, showed that firms in highly concentrated industries had more negative stock returns following the attacks.
  • Statistical analysis confirmed a significant negative correlation between industry concentration and stock market resilience, supporting the hypothesis that competition pushes businesses to innovate, adapt, and prepare for crises.

Discussion and Implications

Relevance to the Scientific Community

This study contributes to the growing body of literature on business resilience and market structure. By linking competition to stock market resilience, we provide empirical support for economic theories that suggest competition drives risk preparedness and adaptability. Future research can expand on this work by exploring how firms in different regulatory environments respond to crises.

Practical Implications

For business leaders, entrepreneurs, and students, these findings highlight the importance of competition in fostering resilience. Companies in highly competitive environments often develop agile strategies, stronger financial buffers, and diversified supply chains—all essential for navigating economic shocks.

Real-World Applications

Students & Future Entrepreneurs: Competition drives innovation—being prepared for challenges is crucial for long-term success.. Future research should continue refining AI trust models to ensure these systems remain beneficial and responsible.

Business Owners & Managers: Encouraging healthy competition within industries can help build long-term sustainability.

Investors: Understanding industry concentration can help predict market risks during crises.

Policymakers: Promoting fair competition can lead to a stronger economy and more resilient businesses.

Alignment with U.N. Sustainable Development Goals

This study strongly aligns with SDG 8: Decent Work and Economic Growth:

  • Healthy competition encourages business innovation, job creation, and economic stability.
  • Findings emphasize the need for policies that promote fair market conditions, ensuring businesses are strong and sustainable.
  • By fostering a competitive business environment, economies can maintain steady growth and provide decent work opportunities.

By integrating these insights into business education, DSPCOB prepares future professionals to lead resilient, ethical, and forward-thinking organizations, ensuring long-term economic stability and growth.

This research contributes to Applied or Integration/Application Scholarship, emphasizing practical implications, real-world decision-making, and strategic applications.

Quality Indicators:

  • ABDC Ranking: C
  • JCR Impact Factor: NA
  • Google Scholar h-5 Score: NA
  • SciMago h-f Score: NA
  • ABS: NA
  • Acceptance Rate (as reported in Cabell’s): 16%
  • Indexed By:
    • Cabell’s: Yes
    • EBSCO: Yes
    • JIF: No
    • SCIMago: No
    • ERIC: No
    • Westlaw: No
    • LexisNexis: No
    • Ulrich’s: Yes