Future profitability and growth, and the roles of firm life cycle and barriers-to-entry.

摘要

This thesis examines how firm profitability and growth, both cross-sectionally and temporally, are impacted by firm life cycle (a fundamental economic construct) and the barriers-to-entry erected by the firm. Evidence reveals that operating income displays a nonlinear pattern across life cycle stages. This suggests that partitioning firms by performance does not adequately capture differences in firm life cycle. Evidence also reveals that the rates of convergence for the drivers of profitability and growth are impacted by firm life cycle. This implies that the validity of constant growth rates is at least partially determined by firm life cycle. It also implies that modeling the behavior of operating income conditional on life cycle stages enhances the predictive value of its drivers---profit margin and asset turnover.; The rate of progression through the life cycle stages is affected by the existence and persistence of a firm's competitive advantage. Consequently, barrier-to-entry variables are examined to determine their impact on firm and industry profitability, both cross-sectionally and temporally. Results show that there are several barrier-to-entry variables (economies of scale, product differentiation, power over suppliers, and power over customers) that explain profitability. Elevated levels of these barriers result in persistent profits above the norm even after five years. Additionally, contemporaneous levels of these variables have a positive effect on one-year-ahead RNOA, even after controlling for current profitability and growth in net operating assets. Market share serves a within-industry function as a barrier-to-mobility against existing competitors, but is ineffective as a barrier-to-entry against potential competitors.