Survivorship and the Economic Grim Reaper

The ten year survival rate for firms trading on the New York and American Stock Exchanges between 1963 and 1995 is only 61%. This paper explores the process by which firms come to be delisted. We calculate the returns of firms from ten 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 pre-delisting 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.

[1]  Richard J. Gilbert,et al.  Investment and Coordination in Oligopolistic Industries , 1987 .

[2]  L. Zacharias,et al.  The Economic Structure of Corporate Law , 1993 .

[3]  Joachim Schwalbach,et al.  Entry and Market Contestability: An International Comparison , 1991 .

[4]  Michael D. Ryngaert,et al.  Shareholder Wealth Effects of the Ohio Antitakeover Law , 1988 .

[5]  Andrei Shleifer,et al.  Breach of Trust in Hostile Takeovers , 1987 .

[6]  Annette B. Poulsen,et al.  Shark repellents and stock prices: The effects of antitakeover amendments since 1980 , 1987 .

[7]  Donald Siegel,et al.  Productivity and Changes in Ownership of Manufactoring Plants , 1987 .

[8]  Richard E. Caves,et al.  The Dynamics of Industrial Competition: A North American Perspective , 1995 .

[9]  L. Waverman.  Corporate Globalization Through Mergers and Acquisitions , 1991 .

[10]  Martin Neil Baily,et al.  Productivity Dynamics in Manufacturing Plants , 1992 .

[11]  Paul Geroski,et al.  Entry, innovation and productivity growth , 1989 .

[12]  G. Schwert,et al.  Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures , 1993 .

[13]  Annette B. Poulsen,et al.  Stock Trading before the Announcement of Tender Offers: Insider Trading or Market Anticipation? , 1989 .

[14]  Edward I. Altman,et al.  FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY , 1968 .

[15]  Edwin Mansfield,et al.  ENTRY, GIBRAT'S LAW, INNOVATION, AND THE GROWTH OF FIRMS , 1962 .

[16]  Andrei Shleifer,et al.  Liquidation Values and Debt Capacity: A Market Equilibrium Approach , 1992 .

[17]  R. Caves.  Industrial Organization and New Findings on the Turnover and Mobility of Firms , 1998 .

[18]  K. Wruck,et al.  Financial distress, reorganization, and organizational efficiency , 1990 .

[19]  Sendhil Mullainathan,et al.  Is There Discretion in Wage Setting? a Test Using Takeover Legislation , 1998 .

[20]  Erik E. Lehmann,et al.  Does the New Economy Need New Governance? Ownership, Knowledge and Performance , 2002 .

[21]  B. Wernerfelt,et al.  A Resource-Based View of the Firm , 1984 .

[22]  Krishna G. Palepu,et al.  Predicting takeover targets: A methodological and empirical analysis , 1986 .

[23]  Michael D. Ryngaert.  The effect of poison pill securities on shareholder wealth , 1988 .

[24]  Robert E. Kennedy,et al.  Competitive Shocks and Industrial Structure: The Case of Polish Manufacturing , 1999 .

[25]  L. Bebchuk,et al.  The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence and Policy , 2002 .

[26]  R. E. Kennedy.  A tale of two economies: Economic restructuring in post-socialist Poland , 1997 .

[27]  O. Williamson.  Corporate Finance and Corporate Governance , 1988 .

[28]  Sang V. Nguyen,et al.  On Productivity and Plant Ownership Change: New Evidence from the Longitudinal Research Database , 1995 .

[29]  A. Auerbach,et al.  Corporate Takeovers: Causes and Consequences. , 1989 .

[30]  J. R. Moore,et al.  The theory of the growth of the firm twenty-five years after , 1960 .

[31]  M. C. Jensen,et al.  The Takeover Controversy: Analysis and Evidence , 2003 .

[32]  Mark J. Roberts,et al.  Patterns of Firm Entry and Exit in U.S. Manufacturing Industries , 1988 .

[33]  M. Lessnoff.  Capitalism, Socialism and Democracy , 1979 .

[34]  Mark J. Roberts,et al.  Industrial evolution in developing countries : micro patterns of turnover, productivity, and market structure , 1996 .

[35]  M. Weisbach,et al.  The Success of Acquisitions: Evidence from Disvestitures , 1990 .

[36]  Richard S. Ruback,et al.  Does Corporate Performance Improve after Mergers? , 1990 .