Abstract
A few highly successful firms (“superstar firms”) have captured large market shares and earned massive profits in recent decades. We examine whether superstar firms are associated with a greater likelihood of financial distress for firms exposed to them in product markets. Building on recent research, we identify superstars as firms with the highest markups in the industry and whose industry markup share increases over time. We then measure, with product similarity scores, a firm’s overall product market exposure to superstars. We document that firms with greater exposure are more likely to file for bankruptcy. We examine why superstar exposure is associated with bankruptcy and show that firms with the greater superstar exposure exhibit weaker financial performance and greater riskiness. Furthermore, we show that the association between superstar exposure and the likelihood of bankruptcy strengthens when superstars have greater market power.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1355-1396 |
| Number of pages | 42 |
| Journal | Review of Accounting Studies |
| Volume | 30 |
| Issue number | 2 |
| DOIs | |
| State | Published - Jun 2025 |
Funding
A previous but substantially different version of this paper was titled \u201CSurvival of the Fittest: A Non-Linear Relation between Industry Performance and Financial Distress.\u201D We appreciate helpful comments from Gaizka Ormazabal (the editor), two anonymous reviewers, Gil Sadka, Gus De Franco, Ole-Kristian Hope, Dhanya Krishan Kumar, Jeffrey Ng, Maria Ogneva, and William Cready. We thank seminar participants at the National University of Singapore, the University of Louisville, the University of Michigan, the 2019 European Accounting Association Annual Congress, the 2019 AAA Annual Meeting, the 2019 CFMA Conference, the 2019 CFEA, and the 2023 Indian School of Business (ISB) Accounting Research Conference for helpful suggestions. We are grateful to the Social Sciences and Human Resources Council (SSHRC) of Canada for funding project-related costs. We also acknowledge financial support from McGill University, Northwestern University, Tulane University, University of Toronto, University of Southern California, and University of Texas at Austin.
Keywords
- Bankruptcy
- Financial Distress
- Financial Performance
- Innovation
- Product Market Exposure
- Superstar Firms
ASJC Scopus subject areas
- Accounting
- General Business, Management and Accounting