Working Paper: NBER ID: w27871
Authors: Mara Faccio; John J. McConnell
Abstract: Using newly-assembled data encompassing up to 75 countries and starting circa 1910, we find that the Schumpeterian process of creative destruction aptly describes the replacement of large firms by other firms, but exceptions to the norm of replacement are not rare and replacement is often not by new firms. Initial firm size and political connections represent the main obstacles to the Schumpeterian process while board interlocks and a corporate culture of innovation play modest roles. Consistent with a theory of political capture, when accompanied by regulations that restrict entry, political connections play a formidable role in abetting large firms remaining large.
Keywords: No keywords provided
JEL Codes: G3; G38; O16; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| confounding by political connections (D72) | true causal mechanisms (C32) |
| political connections (D72) | likelihood of remaining among the largest firms (L25) |
| firm size (L25) | likelihood of remaining among the largest firms (L25) |
| political connections (D72) | firm size (L25) |
| political connections (D72) | impede schumpeterian process of creative destruction (O25) |