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Survivorship and the Economic Grim Reaper

Author

Listed:
  • George P. Baker
  • Robert E. Kennedy

Abstract

The 10-year survival rate for firms trading on the New York and American stock exchanges between 1963 and 1995 is only 61%. This article explores the process by which firms come to be delisted. We calculate the returns of firms from 10 years before delisting to their delisting date and show that, on average, the economic grim reaper kills poorly performing firms. We document takeover and distress delisting rates through time, analyze predelisting equity market returns for both groups, and explore how firm characteristics and regulations governing corporate takeovers and bankruptcy affect the friction with which these processes operate. We believe this is the first analysis to document long-term equity market and operating performance of delisting firms. The study builds on research from both finance and industrial organization and is consistent with a Schumpeterian view of economic development. Copyright 2002, Oxford University Press.

Suggested Citation

  • George P. Baker & Robert E. Kennedy, 2002. "Survivorship and the Economic Grim Reaper," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 324-361, October.
    • Handle: RePEc:oup:jleorg:v:18:y:2002:i:2:p:324-361
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    Cited by:

    1. Ismail, Noor Azina & Jenatabadi, Hashem Salarzadeh, 2014. "The influence of firm age on the relationships of airline performance, economic situation and internal operation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 67(C), pages 212-224.
    2. David B. Audretsch & Erik E. Lehmann, 2013. "Corporate governance in newly listed companies," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 9, pages 179-206, Edward Elgar Publishing.
    3. Alireza Vafaei & Kamran Ahmed & Paul Mather, 2015. "Board Diversity and Financial Performance in the Top 500 Australian Firms," Australian Accounting Review, CPA Australia, vol. 25(4), pages 413-427, December.
    4. Loderer, Claudio F. & Stulz, Rene M. & Waelchli, Urs, 2013. "Limited Managerial Attention and Corporate Aging," Working Paper Series 2013-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    5. Erik Lehmann, 2006. "Does Venture Capital Syndication Spur Employment Growth and Shareholder Value? Evidence from German IPO Data," Small Business Economics, Springer, vol. 26(5), pages 455-464, June.
    6. Li, Keming, 2018. "Innovation externalities and the customer/supplier link," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 101-112.
    7. David B. Audretsch & Erik E. Lehmann, 2004. "The Effects of Experience, Ownership, and Knowledge on IPO Survival: Empirical Evidence from Germany," Papers on Entrepreneurship, Growth and Public Policy 2004-20, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    8. Offenberg, David, 2009. "Firm size and the effectiveness of the market for corporate control," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 66-79, February.
    9. Constant Djama & Isabelle Martinez & Stéphanie Serve, 2012. "What do we know about delistings? A survey of the literature," Post-Print hal-00937899, HAL.
    10. Fabio Cassio-de-Souza & Mario Henrique Ogasavara, 2018. "The Impact of Cross-National Distance on Survival of Foreign Subsidiaries," Brazilian Business Review, Fucape Business School, vol. 15(3), pages 284-301, May.
    11. Wen He & Hwee Cheng Tan & Leon Wong, 2020. "Return windows and the value relevance of earnings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 2549-2583, September.
    12. Loderer, Claudio & Waelchli, Urs, 2010. "Firm age and performance," MPRA Paper 26450, University Library of Munich, Germany.
    13. Ng, Travis, 2014. "Bailing outsourcing," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 983-993.
    14. Seven Ağır & Cihan Artunç, 2017. "Political Economy, Firm Survival and Entrepreneurship in Turkey: The Case of the Wealth Tax (1942)," ERC Working Papers 1707, ERC - Economic Research Center, Middle East Technical University, revised Jun 2017.
    15. Agoraki, Maria-Eleni K. & Giaka, Maria & Konstantios, Dimitrios & Patsika, Victoria, 2023. "Firms’ sustainability, financial performance, and regulatory dynamics: Evidence from European firms," Journal of International Money and Finance, Elsevier, vol. 131(C).
    16. Yuan Ma & Guisheng Hou & Baogui Xin, 2017. "Green Process Innovation and Innovation Benefit: The Mediating Effect of Firm Image," Sustainability, MDPI, vol. 9(10), pages 1-15, September.
    17. Audretsch, David & Lehmann, Erik, 2002. "Does the New Economy Need New Governance? Ownership, Knowledge and Performance," CEPR Discussion Papers 3626, C.E.P.R. Discussion Papers.
    18. Jelena Andrasic & Nada Milenkovic & Kristina Mijic & Vera Mirovic & Branimir Kalas, 2018. "The Impact of Acquisitions on Profitability: Evidence from the Banking Sector in Serbia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 83-99.
    19. Dahiya, Sandeep & Klapper, Leora, 2007. "Who survives? A cross-country comparison," Journal of Financial Stability, Elsevier, vol. 3(3), pages 261-278, October.
    20. Williams, David R., 2013. "Human and financial capital as determinants of biopharmaceutical IPO de-listings," Journal of Business Research, Elsevier, vol. 66(12), pages 2612-2618.

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