Impediments to the Schumpeterian Process in the Replacement of Large Firms

Using newly-assembled data encompassing up to 75 countries and starting circa 1910, we find that the Schumpeterian process of creative destruction aptly describes the replacement of large firms by other firms, but exceptions to the norm of replacement are not rare and replacement is often not by new firms. Initial firm size and political connections represent the main obstacles to the Schumpeterian process while board interlocks and a corporate culture of innovation play modest roles. Consistent with a theory of political capture, when accompanied by regulations that restrict entry, political connections play a formidable role in abetting large firms remaining large.