NEED TO MEET R. David McLean, Visiting Associate Professor of Finance, MIT Sloan School of Management

The corporate economy has become more vibrant over the past half century, with challengers knocking off incumbent industry leaders, said MIT professor R. David McLean. This increase in corporate turnover has tracked the rise of financial alternatives including private equity and venture capital.

Turnover can mean different things in different contexts. McLean defined it this way: “Are the firms that were in the top 10 percent [of their industries] 10 years ago still in the top 10 percent?” Increasingly, researchers found, they are getting knocked out of their leadership positions by upstarts that are younger and nimbler.

McLean, who conducted a study of the topic with Claire Liang and Mengxin Zhao of the University of Alberta, cautioned that the findings of their report, “Creative Destruction and Finance: Evidence from the Last Half Century,” do not bear directly on the role of alternatives, because their analysis was based on research into publicly traded companies, which report more financial details than their non-public counterparts. But he agreed that the timing of the transformation does correspond to the rise of buyouts and VC over the past 20 years.

The researchers used a database of corporate financial statistics to look at the 10-year change in industry leadership, measuring revenues and other financial metrics, looking at the periods 1961 to 1970, 1962 to 1971, and so on. The research encompassed more than 242,000 “firm year” results.

The key finding: “Firms that are growing and gaining market share,” McLean said, “are increasingly younger and smaller when they start off, and they generate less of their funds internally.” This was especially true of industries that are more dependent on capital markets, such as technology and pharmaceuticals, he said.

While this increased turnover did correspond to the growth of financial alternatives, McLean also noted that mainstream capital markets have become more participatory over the decades as well, with individual retirement accounts, 401-K retirement plans and employee stock ownership programs attracting more Americans to equity investing.

The net result is that stronger capital markets support more innovation and vitality, he said. “If the market wasn’t there, you would still have people who have creative ideas. They just can’t finance them.”

Information on the report is available at

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