Survivorship and the economic grim reaper

The 10-year survival rate for firms trading on the New York and American stock exchanges between 1963 and 1995 is only 61%. This article explores the process by which firms come to be delisted. We calculate the returns of firms from 10 years before delisting to their delisting date and show that, on average, the economic grim reaper kills poorly performing firms. We document takeover and distress delisting rates through time, analyze predelisting equity market returns for both groups, and explore how firm characteristics and regulations governing corporate takeovers and bankruptcy affect the friction with which these processes operate. We believe this is the first analysis to document long-term equity market and operating performance of delisting firms. The study builds on research from both finance and industrial organization and is consistent with a Schumpeterian view of economic development.