Using a dataset of over 60,000 publicly traded U.S. companies from 1926 to 2018, the study finds that the median lifespan of a firm is 20 years. This is significantly longer than the 10-year lifespan that is often cited in the literature.
The study also finds that firm mortality rates are not constant. They tend to be higher durante recessions and lower during expansions. This is likely because recessions make it more difficult for firms to raise capital and generate revenue.
In addition, the study finds that firm mortality rates are higher for younger firms and smaller firms. This is because younger firms have not had as much time to establish themselves in the market.
The study's findings could be helpful to investors in a number of ways. For example, investors can use the information on company mortality rates to evaluate the risk of investing in a particular firm. They can also use the information to make more informed decisions about when to buy and sell stocks.
"Our study provides new evidence on the patterns of company mortality," says Professor John Matsusaka, one of the study's authors. "This information could help investors make more informed decisions."
The study is published in the Journal of Financial Economics.
