Impediments to the Schumpeterian Process in the Replacement of Large Firms

61 Pages Posted: 12 Nov 2020

See all articles by Mara Faccio

Mara Faccio

Purdue University - Krannert School of Management; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

John J. McConnell

Purdue University

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2020

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: Schumpeterian Process, Creative Destruction, Impediments, Political Connections, Regulatory Capture

JEL Classification: G18, G34, G38

Suggested Citation

Faccio, Mara and McConnell, John J., Impediments to the Schumpeterian Process in the Replacement of Large Firms (September 15, 2020). Available at SSRN: https://ssrn.com/abstract=3693411 or http://dx.doi.org/10.2139/ssrn.3693411

Mara Faccio (Contact Author)

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John J. McConnell

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