Software availability and entry

Abstract

Research Summary What happens to market structure as an industry's operations lean ever more on software? We find that software availability is associated with an increase in entry and an increase in exit by the oldest and most established firms. We suggest three potential mechanisms and, through post hoc analysis, determine which is most consistent with observed patterns. We find the effect of software availability on entry is stronger in settings with more available IT talent, more permissive labor policies, and greater demand uncertainty. Observed patterns are most consistent with software enhancing labor productivity and thus reducing exposure to uncertainty. Managerial Summary Managers and policymakers are concerned with whether technologies like software and robotics spreading to new industries can make powerful firms even harder to unseat. For software, we find evidence consistent with the opposite: as software becomes more prevalent, entry by new firms increases and the likelihood that older firms exit increases. The patterns of entry we observe are consistent with the following mechanism. Software allows the same number of employees to serve a wider range of production levels, meaning that potential startups are less likely to be deterred by uncertain demand.

Changes in persistence of performance over time

“…This could be driven by technological change leading to more entry, with new entrants competing away low performers. That would be consistent with Bennett and Hall (2020), who suggest that dissemination of software across industries is associated with increasing entry by new firms and exit by the oldest firms. It is also consistent with the results that productivity is not growing among leading firms and that marginal gains in productivity by leading firms are not associated with concentration (Gutiérrez & Philippon, 2017).…”

“…This could be driven by technological change leading to more entry, with new entrants competing away low performers. That would be consistent with Bennett and Hall (2020), who suggest that dissemination of…”

“…I assemble a second dataset, this time from Bureau VanDijk's Orbis product. These data have been used extensively in Strategy (e.g., Belenzon, Bennett, & Patacconi, 2019;Belenzon & Tsolmon, 2015;Bennett and Hall (2020)). To match the Compustat sample, I create a sample of only publicly listed firms headquartered in OECD founding nations.…”

Understanding firm exit: a systematic literature review

“…In these latter cases, researchers infer the exit of the firms making assumptions regarding firms' behavior, like stopping production operations for a certain time period (Jensen & Miller, 2018;Kumar & Zhang, 2019) or not registering in Orbis or Amadeus any sales or assets for more than a few consecutive years. For example, in Bennett and Hall (2020), "deregistration" from Orbis is considered when no sales and no assets were recorded for at least 3 consecutive years. In another case, Fraisse et al, (2018, p. 159) "define firm exit as a situation where a firm disappears simultaneously from the credit register and from the file containing firms' annual financial statements."…”

Political elections and corporate investment: International evidence

“…Strategy scholars have traditionally focused on various sources of environmental uncertainty such as economic shocks (Chakrabarti, 2014), demand fluctuations (Bennett & Hall, 2020), regulatory changes (Dutt & Joseph, 2019;Fabrizio, 2013), and natural disasters (Oh & Oetzel, 2011). Motivated by policy discussions in the aftermath of the 2008-2009 financial crisis, scholars have begun to explore a specific type of uncertainty stemming from the political sector, i.e., political uncertainty, defined as the irresolution about the policies and regulations that a new government will put in place (Baker et al 2016;Blake & Jandhyala, 2019;Bloom, 2014).…”