Journal of African Development

This paper examines the concept of how companies can successfully survive extended economic downturns using strategic cost management and retain social capital and resilience. It looks at the conflict between cost reduction by aggression and preservation of relational assets, in the form of the so-called Paradox of Prudence. The study is based on a six-year longitudinal panel data of 214 firms in both manufacturing and service industries, in which the dynamic interrelations among cost intensity, social capital, and resilience outcomes are examined. The results suggest that aggressive cost reduction has a significant impact on enhancing the financial efficiency (0.42, p < 0.01) in the short term but also reduces social capital (0.37, p < 0.01). There is a strong positive relationship between social capital and organizational resilience (: 0.48, p < 0.01), and the association between cost strategy and resilience partially goes through social capital. Balanced cost strategies of firms have better long-term performance with recovery rates 23 points higher in the long term. The findings demonstrate the need to reconcile financial discipline with relational sustainability in the effort to achieve long-term resilience of the organization.