Frugal companies succeed commercially in part because they consistently control spending and are resourceful with people and products rather than cutting costs reactively, according to a new University of California, Davis, study. The paper, “Corporate Frugality: Theory, Measurement and Practice,” was co-authored by Anne M. Lillis of the University of Melbourne in Victoria, Australia. Forthcoming in the journal Contemporary Accounting Research, it explores frugality as a business culture rather than a reaction to recession.

“The research was motivated by all of the headlines that came out during the worst parts of the recession, indicating that firms were becoming frugal, as evidenced by layoffs and other cuts,” says Shannon W. Anderson, a professor at the UC Davis Graduate School of Management and co-author of the study. “My own experience working with companies on cost management made me very skeptical of the validity of characterizing these actions as evidence of frugality.”

The research confirmed that “today’s reactive, heavy-handed cost-cutting is the antithesis of true frugality,” and should not be mistaken for frugality, she said.

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