Can the Survivor Principle Survive Diversification?

Forthcoming in Organization Science

49 Pages Posted: 3 Dec 2010 Last revised: 10 Sep 2012

See all articles by Lasse B. Lien

Lasse B. Lien

Norwegian School of Economics (NHH)

Peter G. Klein

Baylor University - Hankamer School of Business; Norwegian School of Economics (NHH) - Department of Strategy and Management; Ludwig von Mises Institute

Date Written: November 16, 2010

Abstract

The survivor principle holds that the competitive process weeds out inefficient firms, so that hypotheses about efficient behavior can be tested by observing how firms actually behave. This principle underlies a large body of empirical work in strategy, economics, and management. But do competitive markets actually display what is efficient? Is the survivor principle reliable? We evaluate the survivor principle in the context of corporate diversification, showing that survivor-based measures of inter-industry relatedness are good predictors of firm’s decisions to exit particular lines of business, even when controlling for other firm and industry characteristics that affect the decision to withdraw from one industry or another. We argue further that his relatedness measure captures an important aspect of economic efficiency, not simply firms’ desire for legitimacy by imitation, or attempts to temper multi-market competition. Hence confidence in the survivor principle is warranted, at least in this context.

Keywords: diversification, exit, relatedness, survivor principle

JEL Classification: L22, G34, L10, B40

Suggested Citation

Lien, Lasse B. and Klein, Peter G., Can the Survivor Principle Survive Diversification? (November 16, 2010). Forthcoming in Organization Science, Available at SSRN: https://ssrn.com/abstract=1718649 or http://dx.doi.org/10.2139/ssrn.1718649

Lasse B. Lien

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, 5045
Norway
+47 55959726 (Phone)

Peter G. Klein (Contact Author)

Baylor University - Hankamer School of Business ( email )

Waco, TX 76798
United States
254-710-4903 (Phone)

Norwegian School of Economics (NHH) - Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway

Ludwig von Mises Institute ( email )

Auburn, AL
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
238
Abstract Views
2,622
rank
147,685
PlumX Metrics