Conditional Life Cycle: An Examination of Operating Performance for Leaders and Laggards

Management Science, Forthcoming

45 Pages Posted: 17 Nov 2015 Last revised: 25 Oct 2018

See all articles by Brett Wooten Cantrell

Brett Wooten Cantrell

University of Mississippi - Patterson School of Accountancy

Victoria Dickinson

University of Mississippi - Patterson School of Accountancy

Date Written: August 1, 2018

Abstract

The economics and management literature provides theoretical support for both leader and laggard firms to earn higher future operating returns. However, prior empirical research lacks a generalizable proxy to capture leader vs. laggard behavior, thus limiting prior findings to specific contexts. This study utilizes a combination of firm-specific and industry life cycle identification to categorize leaders and laggards and validates the designation against constructs established in prior literature. Additionally, we examine each strategy’s effect on future performance, finding that, in general, laggards earn greater operating returns. Laggards gain their advantage through product differentiation, specifically through marketing/advertising expenditures. Leaders are, on average, unable to convert their first movers’ advantage into sustainable future profitability once we control for other determinants of profitability. The leader/laggard classification using financial statement information has useful applications in analysis, forecasting, and valuation.

Keywords: fundamental analysis, life cycle, profitability, rates of return, return on assets, stock returns, industry-adjusted

Suggested Citation

Cantrell, Brett Wooten and Dickinson, Victoria, Conditional Life Cycle: An Examination of Operating Performance for Leaders and Laggards (August 1, 2018). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2691138 or http://dx.doi.org/10.2139/ssrn.2691138

Brett Wooten Cantrell (Contact Author)

University of Mississippi - Patterson School of Accountancy ( email )

P.O. Box 1848
Conner Hall
University, MS 38677
United States

Victoria Dickinson

University of Mississippi - Patterson School of Accountancy ( email )

Conner 204C
University, MS 38677
United States
662-915-5448 (Phone)
662-915-7483 (Fax)

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