Investors Meet Dynamic Strategy

Randall Morck (), Bernard Yeung () and Lu Zhang ()
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Randall Morck: University of Alberta, Edmonton, Alberta T6G 2R6, Canada
Bernard Yeung: National University of Singapore, 117592 Singapore
Lu Zhang: Ryerson University, Toronto, Ontario M5B 2K3, Canada

Strategy Science, 2022, vol. 7, issue 2, 120-129

Abstract: Professor Ghemawat argues that commitment is key to gaining a competitive advantage, but can leave a firm vulnerable to rapid and disruptive changes. He and other leading strategy scholars explore the intricacies of developing and sustaining a dynamic competitive advantage. Yet, economists argues that most firms eventually fail to maintain competitiveness. Functionally efficient financial markets, by capitalizing innovative entrants and culling uncompetitive firms, sustain economy-level prosperity. Ghemawat (1991) highlights this tension: firm-level competitiveness can give investors high returns for years, while returns regress towards the mean. Applying this insight to well-documented historical episodes of rapid innovation in various industries, we show that leading U.S. firms in 1920s acquired durable competitive advantages, as did many in the 1960s, but that later entrants often felled early leaders in the 1990s IT boom, consistent with intensified creative destruction. Still, even these shorter-term winners paid well above average cumulative returns. Strategy research that could predict the durability of leading firms’ competitive advantages through an era of rapid innovation would have tremendous value to practitioners in finance.

Keywords: commitment; dynamic strategy; entry; exit; performance; evolution (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:7:y:2022:i:2:p:120-129

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