A profit-based model of the firm

Dr. Uck and I have been working on a paper for this August's Academy-- It's still a "working paper" but I thought I'd post some preliminary results, which are modeled to the right.


One of the biggest questions in the strategy literature is What makes a firm survive? Using data from 728 firms in 32 industries, we used firm profit as an explanatory variable. According to our theory, as a firm becomes more profitable, it will experience higher survival rates. So then, our hypotheses:


H1: As a firm's profit grows, its mortality rate decreases

H2: As a firm's profit grows, its survival rate increases

H3: As a firm's profit grows, its failture rate decreases

H4: As a firm's profit grows, it's chance of staying "in business" increases


Based on the longitudinal study of 728 firms in 32 industries, we found support for all of our hypotheses. Firms that regularly lost money experienced higher rates of failure than firms that regularly made money (operationalized as "profit").


More to come soon...


Best,

Prof F