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The mortality of companies
Madeleine I G Daepp1, Marcus J Hamilton2, Geoffrey B West3
1Santa Fe Institute, Santa Fe, NM, USA Integrated Studies in Land and Food Systems, University of British Columbia, Vancouver, British Columbia, Canada.
Journal of the Royal Society, Interface
|April 3, 2015
Summary
Publicly traded companies exhibit a constant mortality rate, independent of age. The typical lifespan, or half-life, for these firms is approximately ten years across all sectors.
Area of Science:
- Economics
- Business Analytics
- Sociology
Background:
- Firms are fundamental economic units in modern societies.
- Previous studies on firm lifespans and mortality have yielded inconsistent findings.
- Understanding firm dynamics is crucial for economic theory.
Purpose of the Study:
- To statistically analyze the lifespans and mortality rates of publicly traded North American companies.
- To determine if company age influences mortality risk.
- To establish a baseline for firm lifespan in a large dataset.
Main Methods:
- Utilized a comprehensive database of over 25,000 publicly traded North American companies from 1950 to 2009.
- Employed detailed survival analysis techniques.
- Calculated hazard rates and firm half-lives.
Main Results:
- Firm mortality displays an approximately constant hazard rate over extended observation periods.
- Company age was found to be independent of mortality risk.
- The typical half-life for a publicly traded company is approximately one decade, irrespective of its business sector.
Conclusions:
- Firm mortality follows a predictable pattern, characterized by age-independent hazard rates.
- The findings suggest a consistent dynamic of company births and deaths.
- These results provide essential data for developing a general theory of firms.
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