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Corporate Lifespans Shrinking?
There was an article on Yahoo Finance about company lifetimes shortening. It was simply a regurgitation of a study done by Boston Consulting Group which states that corporate lifespans are decreasing at a faster rate since the late 20th century.

Some things that stuck out to me were:

Quote:One might expect particular types of company, such as new entrants in the technology sector, to account for most of the observed shift. Surprisingly, however, our research shows that the surge in mortality risk is widespread:
  • There are no safe harbors. Mortality risk grew relatively uniformly across all sectors of the economy. Only the past decade saw a slight divergence in outcomes: traditionally stable oligopolies (such as the oil and gas industry) recovered the most, while mortality remains high in more dynamic industries (such as technology).
  • Neither scale nor experience is a safeguard. Mortality risk also grew for companies of all sizes and ages. While smaller companies have always faced greater risk, even the largest companies are now facing higher exit rates. Company age only began to affect exit risk in the first decade of the 2000s, when turnover plateaued for older companies but continued to grow among younger ones.
. . .
We observed a surprising relationship between revenue growth and mortality: while the fastest-shrinking companies are most likely to perish, they are closely followed by the fastest growers. That is, accelerated growth correlates with shorter life spans, whereas companies with more moderate growth face the lowest risk.
. . .
Shorter life spans and diminished lifetime value constitute a strong trend—but not an inevitability. The same can be said about the relationship between growth and mortality. While it is ever tougher for companies to sustain viability and performance, there is also a broader spread of outcomes—and there are examples of companies that manage to successfully endure (such as Procter & Gamble, Johnson & Johnson, Coca-Cola, and Disney).

The last quote made me think that P&G's recent troubles and the wholesale "housecleaning" and BHP Billiton's getting into oil and jettisoning their lower margin commodity lines are good things meant to keep the corporations relevant.

It also made me think of Walgreens changes over the last 5 years -- getting rid of their PBM business, challenging Express Scripts, forming the joint venture with ABC and finally buying Alliance Boots.

They did have some prescriptions for corporations to survive and thrive but they were mostly vague concepts. Perhaps the changes I cited above are things we should be looking for when thinking of the sustainability of the companies we invest in.

Your thoughts?

The original study is here.

“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan

It sounds like they included M&A in their statistics, as in, if a company got acquired it was counted as a corporate death. While it's true that many acquisitions were done in times of distress (such as Wachovia, WaMu, etc. during the financial crisis), we see plenty of acquisitions of companies that are doing just fine. That makes me skeptical of their conclusions.
Very interesting! This jumped out at me:

Quote:Interestingly, most types of businesses in most industries are now dying younger. Only a few make it into their fifties and sixties.

I would love to see "only a few" quantified somehow. And I would like to see statistics on longevity once a company has survived to a certain age. That is, if a company makes it to 25 years, it is more likely to survive to 100, say?
Was reading this article on the Economist and it reminded me of this discussion here.

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