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The Value of Adaptability

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  • Katsuya Takii

    (Osaka School of International Public Policy)

Abstract

This paper examines a firm's ability to respond correctly to an unexpected change in the environment (i.e., its adaptability). We develop a model that allows for empirical examination of the impact of a firm's adaptability on its expected profits. The theory shows that a firm's adaptability can be estimated by the squared correlation between an unexpected change and the firm's reaction. The estimates show that adaptability has a large positive impact on the average profit rate and the market value of a firm. We also find that an increase in risk is correlated with a rise in adaptability.

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Bibliographic Info

Paper provided by EconWPA in its series Industrial Organization with number 0406004.

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Date of creation: 06 Jun 2004
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Handle: RePEc:wpa:wuwpio:0406004

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  1. Holmes, Thomas J & Schmitz, James A, Jr, 1990. "A Theory of Entrepreneurship and Its Application to the Study of Business Transfers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(2), pages 265-94, April.
  2. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-67, September.
  3. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
  4. Davis, Steven J. & Haltiwanger, John, 1999. "Gross job flows," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 41, pages 2711-2805 Elsevier.
  5. Katsuya Takii, 2000. "Prediction Ability," Econometric Society World Congress 2000 Contributed Papers 1411, Econometric Society.
  6. David Thesmar & Mathias Thoenig, 2000. "Creative Destruction And Firm Organization Choice," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 115(4), pages 1201-1237, November.
  7. Paul Osterman, 2000. "Work reorganization in an era of restructuring: Trends in diffusion and effects on employee welfare," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 53(2), pages 179-196, January.
  8. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September.
  9. Paul Osterman, 1994. "How common is workplace transformation and who adopts it?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(2), pages 173-188, January.
  10. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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Cited by:
  1. Katsuya Takii, 2004. "Entrepreneurial Efficiency: An Empirical Framework and Evidence," Macroeconomics, EconWPA 0411006, EconWPA.
  2. Takii, Katsuya, 2008. "Fiscal policy and entrepreneurship," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 592-608, March.
  3. Katsuya Takii, 2009. "Entrepreneurial competition and its impact on the aggregate economy," Journal of Economics, Springer, vol. 97(1), pages 1-18, May.

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