Shifting Sands Whilst Sifting for Profits: Evolving Patterns of Firm Size and Performance in the U.S. Economy

Abstract

Research Summary: Firm size has long been recognized as a source of competitive advantage. However, the disruptions arising from the knowledge-based global economy are decoupling the link between firm size and profitability. We demonstrate in this article, the structural shifts and evolving patterns in the U.S. industrial economy by capturing the emerging disconnect in the relationships between firm size, growth, and financial performance across multiple industries with a long-range COMPUSTAT panel data. We highlight the emerging challenges to the field of management from the paradigm shifts occurring due to the disruptive technologies, broadening global competition, dynamic consumer trends, and volatile financial markets for the past three decades. We further discuss the implications for corporate strategy, governance, and organization. Managerial Implications: Although it has been a well-established notion that large organizations with more capital and assets will enjoy the advantages of high profitability, in recent times, the large firms are increasingly experiencing the financial crisis. The widening gap between firm size, capital structure and, profitability for the past three decades implies increased risk to long-term investors. The trodden path of mergers and acquisitions for quick growth, consolidation, or diversification is not translating into long-term shareholder value. Given the disruptive technologies, shortened product life cycles, and continuously changing industry structures, firms’ growth strategy must incorporate the agility, speed, and responsiveness. Firms need to build trust-driven, symbiotic, and dis-aggregated form of organization and reconfigure the value chain to reduce both coordination cost and investment risk.