What we Know (or Think we Know) About the Causes of Superior Financial Performance

Both economic theory and historical experience support the importance of finding ways of achieving good financial performance for the long-term prosperity and survival of individual firms. Although economics is somewhat vague on how to achieve this end, owners and more recently hired managers have, in practice, attempted to make decisions to improve their companies’ financial performance in the face of complex environmental realities, an array of strategic choices and a variety of ways to organize. The continued existence today of firms incorporated in the late 19th and early 20th centuries (e.g., Ford, General Electric, Westinghouse) is testimony to some combination of successful managerial decisions, favorable business and economic conditions, and chance, leading to levels of financial performance acceptable over the long run. The disappearance, as independent entities, of many more once-successful organizations, born in a similar time period or later, is testimony to significant failure in achieving acceptable financial performance.