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Survivorship and the Economic Grim Reaper

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  • George P. Baker
  • Robert E. Kennedy
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    Abstract

    The 10-year survival rate for firms trading on the New York and American stock exchanges between 1963 and 1995 is only 61%. This article explores the process by which firms come to be delisted. We calculate the returns of firms from 10 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 predelisting 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. Copyright 2002, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal The Journal of Law, Economics, and Organization.

    Volume (Year): 18 (2002)
    Issue (Month): 2 (October)
    Pages: 324-361

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    Handle: RePEc:oup:jleorg:v:18:y:2002:i:2:p:324-361

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    Cited by:
    1. Erik Lehmann, 2006. "Does Venture Capital Syndication Spur Employment Growth and Shareholder Value? Evidence from German IPO Data," Small Business Economics, Springer, vol. 26(5), pages 455-464, 06.
    2. Offenberg, David, 2009. "Firm size and the effectiveness of the market for corporate control," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 66-79, February.
    3. David B. Audretsch & Erik E. Lehmann, 2004. "The Effects of Experience, Ownership, and Knowledge on IPO Survival: Empirical Evidence from Germany," Papers on Entrepreneurship, Growth and Public Policy 2004-20, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    4. Dahiya, Sandeep & Klapper, Leora, 2007. "Who survives? A cross-country comparison," Journal of Financial Stability, Elsevier, vol. 3(3), pages 261-278, October.
    5. Constant Djama & Isabelle Martinez & Stéphanie Serve, 2012. "What do we know about delistings? A survey of the literature," Post-Print hal-00937899, HAL.
    6. Claudio Loderer & René Stulz & Urs Waelchli, 2013. "Limited Managerial Attention and Corporate Aging," NBER Working Papers 19428, National Bureau of Economic Research, Inc.
    7. Audretsch, David B & Lehmann, Erik, 2002. "Does the New Economy Need New Governance? Ownership, Knowledge and Performance," CEPR Discussion Papers 3626, C.E.P.R. Discussion Papers.
    8. Constant Djama & Isabelle Martinez & Stéphanie Serve, 2012. "What do we know about delistings? A survey of the literature," THEMA Working Papers 2012-38, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    9. Loderer, Claudio & Waelchli, Urs, 2010. "Firm age and performance," MPRA Paper 26450, University Library of Munich, Germany.
    10. Williams, David R., 2013. "Human and financial capital as determinants of biopharmaceutical IPO de-listings," Journal of Business Research, Elsevier, vol. 66(12), pages 2612-2618.

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