Professor Murmann's Blog: List of firms how superior performance cannot be explained by randomness

List of firms how superior performance cannot be explained by randomness

Andy Henderson and his coauthors have done us a great service. They are analyzed last decades to find a list of firms whose superior performance cannot be explained by randomness.

Although sustained superior firm performance may arise from skillful management or other valuable, rare, and inimitable resources, it can also result from randomness. Studying U.S. companies from 1965–2008, we benchmark how long a firm must perform at a high level to be confident that it is something other than the outcome of a time-homogeneous stationary Markov chain defined on the state space of percentiles. We find (a) the number of sustained superior performers in Compustat, measured by ROA and Tobin’s q, exceeds the number of false positives we would expect to be generated by such a process; yet (b) the occurrence of false positives is often enough to fool many observers, so (c) the identification of sustained superior performers requires particularly stringent benchmarks to enable valid study.

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Click on More to see the list of firms.

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