Firm Longevity Research Articles

The use of game theory in building sustainable competitive advantage

Creating sustainable competitive advantages is central to both the success and longevity of firms competing in today’s business environment. One powerful tool that businesses can learn from and utilize to potentially foster such advantages is game theory. Further, we have thoroughly researched previous studies and determined three areas in which competitive advantages can be derived from the implementation and understanding of game theory principles. These include improved decision-making, supply chain management, and employee management. Our goal is to analyze the works of experts on the subject to further our understanding of the topic. This research will provide a foundation for the subsequent justifications on how game theory can be utilized to create the competitive advantages we specified. Reviewing our findings has led the researcher to believe that firms of any variety looking to improve their decision-making, supply chain management, and/or employee management could find great value, if not create fully realized competitive advantages, from taking game theory and its observations into consideration.

Towards Sustainable Growth : Examining The Interplay Of Good Governance, Earnings Management, Tax Compliance, And Firm Longevity

Towards Sustainable Growth : Examining The Interplay Of Good Governance, Earnings Management, Tax Compliance, And Firm Longevity

Preserving the longevity of long-lasting family businesses: a multilevel model

Prior research lacks an understanding of how decision makers preserve longevity within family businesses. This study examines longevity under a microfoundational lens, through an interpretive qualitative research design. The selected cases are nine long-established Australian family wineries. The outcome is a multilevel grounded model of the preservation of family firm longevity that integrates the dual firm-family relationship with the individual level of decision makers. The model shows the role played by interactions among multiple levels of analysis — namely, the individual, the family and the firm — in preserving the longevity of the family business.

Co-Worker complementarities and new firm survival

ABSTRACT In the present paper, we analyse the association between the skill composition of young firms and the firms’ subsequent survival. This is made possible by means of a matched employer-employee dataset from Statistics Sweden on a cohort of firms that started between 2001 and 2003. Our findings show that, compared to firms that exit, the firms that survive at least until 2012 have teams with higher complementarity at the start, and successively increase their skill complementarity over time. Subsequent discrete time hazard models, controlling for several well-known determinants of firm longevity, show that complementarity plays a crucial role for firm survival. Higher skill synergy within firms, as compared to high degrees of substitutability, is associated with a lower conditional probability of failing. The role of skill complementarity is stable across different specifications and outweighs many other determinants of firm survival, such as starting size and experience of the founder.

The Firm as Observer: Data Resources and Firm Longevity in Bylund’s Austrian Theory of the Firm

The Firm as Observer: Data Resources and Firm Longevity in Bylund’s Austrian Theory of the Firm

What Makes Companies to Survive over a Century? The Case of Dongwha Pharmaceutical in the Republic of Korea

Considering their significant impacts on national economy, local communities, employees, suppliers, and other stakeholders, firm survival is an important goal for most companies. However, firm longevity is not an easy result to achieve, and it becomes more difficult as business environments shift dramatically. The average life span of companies listed in Standard and Poor’s 500 was 61 years in 1958, but it fell to less than 18 years in 2016. Nevertheless, more than 3000 companies over 200 years old still operate in Japan, mostly family inherited small and medium enterprises (SMEs), and Germany has many centenarian companies, especially in the manufacturing industry. However, in the Republic of Korea, with over 4000 years of history, there are no companies older than 200 years and only seven companies with over 100 years of history. Centenarian companies in Korea are very limited, and even after surviving over 100 years, they continue to face severe challenges they need to overcome in order to survive. However, it is not clearly proven what factors affect the survival of companies for over a century. Since SMEs contribute to the economic development and survival of a country, it is important to investigate the secrets of their longevity, which has become even more difficult than ever. However, as there is very limited research on firm longevity, the findings from this case study of Dongwha Pharmaceutical, balancing the continuity of tradition and innovation, provide significant implications and practical guidelines for Korean SMEs for their survival and sustainable management, which is an economic and business aspect of sustainability.

Business strategies of companies with a longevity of 300 years or longer in Japan: A concept model

This study was conducted to explore and evaluate the key factors supporting the business sustainability and longevity of firms that have survived for 300 years and more in Japan. The business owners of 10 such companies in Nihonbashi, Tokyo, Japan, were invited to interviews. The interview data was analysed with a text mining approach to develop the key themes advocating these companies’ business sustainability. From the research, a conceptual framework was developed, suggesting four key factors perceived by the owners: ‘customers and products’, ‘owner and employees’, ‘management and business credo’ and ‘change and risk management’. It was also found that non-economic values and the perception as a member of the community (‘Sanpo-Yoshi’) are embedded in their mindsets, which have been driving forces for these firms’ business behaviour.

The levels of base pay and incentive pay used by small firms to compensate professional employees with general and specific human capital

ABSTRACT Drawing on human-capital theory, we propose divergent associations of professional employees’ base pay and incentive pay with their levels of human capital in the small business context. Based on secondary data on 3,750 professional employees representing 65 small firms, we found that, whereas human capital has a positive relationship with base pay, the relationship between human capital and incentive pay is less apparent. Specifically, we found that the relationship between incentive pay and position-specific experience is negative. Our findings suggest that small firms may use higher incentive pay to initially attract talent. Yet, the incentive pay does not grow as professional employees gain firm-specific experience. Moreover, the incentive pay significantly falls as professionals gain more position-specific experience, and this negative relationship is stronger in small firms with higher sales productivity. Further, firm longevity shows a moderately significant positive relationship with base pay; however, the findings show that firm longevity is negatively related to incentive pay.

Understanding the main drivers of family firm longevity: the role of business family learning

Through an exploratory study of three long-standing German family firms, we propose a theoretical framework to study family firm longevity. Whereas research so far has mainly focused on the firm’s level of analysis, this study aims to elucidate the role of the business family learning in the longevity of these long-standing family firms. Moreover, the business family is considered as an independent organizational entity capable of learning and developing. Drawing upon the concept of organizational learning, we find higher-level learning as a vehicle for defining the purpose of the business family—transgenerational control—and the implementation of necessary structures—succession processes. Lower-level learning ensures these successions processes are adaptable to environmental changes. Implications for theory and practice are discussed.

Is the Art Market More Bourgeois than Bohemian?

The art market is famous – or notorious – for auctions at Sotheby’s and Christie’s at which works by well-known artists are sold for stratospheric prices. Researchers have argued that such prices are volatile and unpredictable based on economic fundamentals, implying that at least some segment of the art market behaves irrationally. In this paper, we examine whether the broader art market, composed mostly of small galleries, is more consistent with standard economic models. In particular, we ask whether the location patterns of art galleries exhibit behavior consistent with agglomeration economies, as would be predicted for retail firms selling highly differentiated and expensive products. Using a newly developed database, we find strong evidence of agglomeration economies among Manhattan art galleries from 1970-2003. Galleries locate in highly concentrated spatial clusters, and these clusters are more likely to occur in neighborhoods with affluent households and older, more expensive housing, consistent with locating near potential consumers. We find no evidence that galleries locate in cheap, “bohemian” neighborhoods. The highest quality tier of the art market, which has been most widely studied, contains a relatively small share of gallery establishments, although these “star” galleries have a longer average lifespan than non-star galleries. Locating near other galleries also increases the longevity of firms and establishments.

Standing the test of time: External factors influencing family firm longevity in Germany and Spain during the twentieth century

While most research on family business longevity focuses on how internal corporate governance issue impact resilience, the aim of this article is to foreground the relevance of external environmental factors, and to do so in an internationally comparative perspective. By historically comparing the largest family businesses in Germany and Spain in the twentieth century, we find that they differ significantly in age and ask how external factors help us better understand these variances. After analysing the institutional framework of the two countries during the second part of the 20th century, we explore the strategic responses developed in reaction to that framework by four of the largest family businesses in the two countries. With this, we strive to capture the interdependent nature of internal decision-making processes and external environmental changes, ultimately arguing for a more holistic understanding of family business resilience over time.

Corporate Diplomacy and Family Firm Longevity

We discuss family firm longevity building upon a new conceptual lens, informed by transaction cost economics (TCE), but augmented with corporate diplomacy thinking. Family firms, because of their superior foundation of bonding social capital (interpreted here as a firm-specific, transaction cost-reducing governance mechanism), have an intrinsic advantage vis-à-vis nonfamily firms with regards to utilizing network ties supportive of longevity. Most family firms, however, fail to leverage effectively this governance tool to achieve longevity, due to bifurcation bias (BB), that is, the unchecked prioritization of assets and relationships that hold affective value for the family. We propose that corporate diplomacy, through its three process steps, familiarization, acceptance, and engagement, can help the family firm augment its baseline reservoir of social capital, and allows improved economizing on contracting challenges that endanger its survival. Externally, corporate diplomacy helps economizing on expressions of BB in relationships with outside stakeholders, thus augmenting bridging social capital. Internally, it can address biased treatment of family versus nonfamily human assets, thereby augmenting bonding social capital. Intergenerationally, corporate diplomacy supports access to, and improved reliance upon the firm’s social capital by next generation family members. The family firms that focus on corporate diplomacy processes and the resulting social capital creation greatly improve their chances of longevity.

Family cumulative knowledge and firm’s financial performance: An empirical investigation of the wine companies’ governance

Family business is one of the most common governance systems worldwide and it is very successful in industries with strong cultural traditions, as the wine business. The literature still disagrees on whether the familiar corporate structure increases performance or not. Our empirical paper aims to investigate the effect of a long-term company culture in terms of economic performance and firm value. Is it possible to track the cumulative knowledge (passed from father to son) into firm economic returns? Using a qualitative and a quantitative research approach, the survey tests the hypothesis that the more experienced companies (higher firm age) will perform better than the others considering a set of performance indicators on a four years pattern (from firm value to EVA and VAIC). Comparing firm longevity with the performance indicators, but also monitoring many other corporate governance or ownership indicators, on a panel dataset of the top Italian wine companies, developing the statistical models of regression and correlation to verify the relationship between performance indicators and a set of corporate governance/ownership variables. This methodology results in a deep analysis of the Italian wine business, that also describes the family buy-out strategy and the cooperative ownership structure (which could be considered somehow a micro-families aggregative model). Proper family firms represent 42% of the panel, with more than 200 years of experience, a larger presence of women on board, a higher average age of the directors and a higher propensity to the production of grapes. Moreover, they have the greatest longevity and perform better than the other two groups, non-family firms and cooperatives.

An exploratory study of factors affecting the longevity of manufacturing operations offshore

Because of changes in tax regulations and increased political pressure, firms are reconsidering their practices of shifting manufacturing operations offshore to lower wage countries. Although outsourcing has been well researched, few studies examine managerial practices that influence offshore operations. We investigate the effects of choices regarding labor, suppliers, and outsourcing that influence firm longevity in the maquiladora industry in Mexico. We argue that firms are exposed to labor frictions, supply-chain constraints, and compliance and regulatory risks that if left unresolved can lead to plant closure attributable to labor or regulatory frictions and rising costs. We consider specific actions pursued by managers at maquiladora plants to mitigate the underlying constraints and then analyze factors that affect the likelihood of continuing operations, that is, the longevity of the plants. We find a positive relation between the likelihood of longevity in operations and the following plant characteristics: hourly wages, workforce stability, skill, and the decision to outsource regulatory compliance functions. We document a negative relation between longevity and total labor cost as a percent of total costs as well as using suppliers based in Mexico. We also find that high-tech plants have higher stability, pay higher wages, and experience greater longevity than low-tech plants. Overall, we identify key managerial choices that are related to longevity in offshoring production.

The paradox of family firm longevity: 700 years of Frescobaldi

We discuss the paradox of family firm longevity using a transaction cost economics (TCE) perspective. Using an analytic narrative approach, we conduct a historical analysis of a 700-year old family firm and develop a process model explaining how high-longevity families economize on forces that threaten their business, i.e. changes in the macroeconomic and institutional contexts at the macro-level, and pressures to prioritize heritage assets and routines at the micro-level. We argue that history, documented and transmitted through generations, informs the practices of high- longevity family firms, which focus on long-term economic value creation. These practices entail, inter alia, entrepreneurial resource orchestration to adapt to contextual changes, building reputation to protect transactions, and implementing distinct mechanisms to economize on individual-level biases.

Analysing the role of psychic distance on the export behaviour of Chilean service exporters

This paper demonstrates the export behaviour of firms as a nonlinear dynamic behaviour which shows both 'continuity' and 'discontinuity' in their export engagements depending on their market diversification. Likewise, this behaviour is also moderated by psychic distance. The findings of this research promote export designing, the building of an appropriate international market competitiveness and growth-focused policies for the Chilean service sector. Such policies should be targeted to build a conductive local ecosystem supporting the reduction of the early mortality in young firms in process of internationalisation and thus reducing the rate of discontinuing export by mature firms and therefore extending the longevity of mature firms in the international market. Such policies should be devised on short, medium and long-term perspectives. These policies can be equally important to the service sectors in other developing countries facing similar challenges.

Analysing the role of psychic distance on the export behaviour of Chilean service exporters

This paper demonstrates the export behaviour of firms as a nonlinear dynamic behaviour which shows both 'continuity' and 'discontinuity' in their export engagements depending on their market diversification. Likewise, this behaviour is also moderated by psychic distance. The findings of this research promote export designing, the building of an appropriate international market competitiveness and growth-focused policies for the Chilean service sector. Such policies should be targeted to build a conductive local ecosystem supporting the reduction of the early mortality in young firms in process of internationalisation and thus reducing the rate of discontinuing export by mature firms and therefore extending the longevity of mature firms in the international market. Such policies should be devised on short, medium and long-term perspectives. These policies can be equally important to the service sectors in other developing countries facing similar challenges.

Explicit and normative contracting in collaborations of varying magnitudes: Differing perspectives of component suppliers and original equipment manufacturers

Industrial component suppliers and original equipment manufacturers utilize explicit and normative contracting to facilitate effective collaboration so as to garner joint profits. However, although collaborations vary in magnitude, research have yet to examine how these governance mechanisms may vary across collaborations of differing magnitudes, especially when considering the effects given differences in the longevity of firms' relationships. The results of a two study, empirical analysis employing structural equation modeling indicates that (1) component suppliers and original equipment manufacturers regard explicit and normative contracting as full and distinctive mediators of the relationship between collaborative magnitude and joint profits, and (2) that the longevity of the relationship between the firms moderates the effects of collaborative magnitude on explicit and normative contracting. Furthermore, between-group analyses indicate that component suppliers and original equipment manufacturers regard the effects of collaborative magnitude on explicit and normative contracting differently, and their perceptions of the effects of each contracting form on joint profits also differs.

The drivers of firm longevity: Age, size, profitability and survivorship of Australian corporations, 1901–1930

Why do some firms last longer than others? This question has attracted considerable interest among scholars from business history, management and economics. Our article combines the business historian’s macro view of the relationship between size, longevity, and economic development with quantitative modelling. We apply survival analysis to data relating to size, age and profitability, three first-order explanations of longevity, for Australian stock exchange (ASX) listed corporations from 1901 to 1930. The novelty of the article is twofold: we find that firm size is a poor predictor of longevity for the full sample but its age and profitability are highly significant; our data covers a longer time frame and relates to a rich mid-sized and non-industrialised country.

New Firm Survival: Isolating the Role of Founders’ Human Capital in Accounting for Firm Longevity

The effect of the stock of human capital of entrepreneurs on business longevity is not clear-cut. Our study is based on a wide and comprehensive data set of more than 200,000 entrepreneurs settled in France over three cohorts (1994, 1998, and 2002). We highlight a positive correlation of both general (education) and specific (training) components of the stock of human capital with survival and show that these components appear to be substitutes. Our results also indicate that the magnitudes of the education and training effects seem to be considerably lower for necessity-driven entrepreneurs.