The mortality of companies

The firm is a fundamental economic unit of contemporary human societies. Studies on the general quantitative and statistical character of firms have produced mixed results regarding their lifespans and mortality. We examine a comprehensive database of more than 25 000 publicly traded North American...

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Bibliographic Details
Published in:Journal of the Royal Society interface 2015-05, Vol.12 (106), p.20150120-20150120
Main Authors: Daepp, Madeleine I. G., Hamilton, Marcus J., West, Geoffrey B., Bettencourt, Luís M. A.
Format: Article
Language:English
Subjects:
Commerce - statistics & numerical data
Databases, Factual
Firm Longevity
Industry - statistics & numerical data
Mergers And Acquisitions
Models, Economic
Models, Statistical
North America
Private Sector - statistics & numerical data
Stock Markets
Survival Analysis
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Summary:The firm is a fundamental economic unit of contemporary human societies. Studies on the general quantitative and statistical character of firms have produced mixed results regarding their lifespans and mortality. We examine a comprehensive database of more than 25 000 publicly traded North American companies, from 1950 to 2009, to derive the statistics of firm lifespans. Based on detailed survival analysis, we show that the mortality of publicly traded companies manifests an approximately constant hazard rate over long periods of observation. This regularity indicates that mortality rates are independent of a company's age. We show that the typical half-life of a publicly traded company is about a decade, regardless of business sector. Our results shed new light on the dynamics of births and deaths of publicly traded companies and identify some of the necessary ingredients of a general theory of firms.
ISSN:1742-5689
1742-5662
DOI:10.1098/rsif.2015.0120