Wibbens, Phebo Derk

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  • Publication
    Exploring The Multi-Trillion Dollar Question: How Resource Dynamics Shape Long-Term Profit Patterns
    (2018-01-01) Wibbens, Phebo Derk
    Only a few dozen firms across different industries have been able to appropriate a large share of the trillions of dollars of total net value appropriation in US markets over the past decades. This dissertation examines, using formal modeling, how resource dynamics in competitive markets shape such long term profit patterns. Chapter 1 introduces the main questions and concepts, including a general formal framework that can be used to represent RBV-based theories in terms of stochastic state space models, as well as a five-step program to do so. In chapter 2 a new measure of long-term firm performance is developed: LIVA (long-term investor value appropriation). This measure helps to address a disconnect between the common theoretical assumption that managers optimize firm value, and the widespread empirical practice of measuring performance using short-term ratios such as ROA (return on assets). Chapter 3 describes a dynamic model and empirical inference of the relation between resource competition and the decomposition of variations in returns into firm-specific and industry components. The model shows that the investment dynamics for scarce resources amplify any idiosyncratic shocks to their resource positions, thus providing a very general mechanism for the empirical regularity that variations in return have a high firm-specific component. Empirical results from a Bayesian hierarchical analysis of stock market returns support the model predictions. Chapter 4 describes a formal model to analyze how profit persistence is affected by higher order resources, which are an abstract representation of dynamic capabilities. The model in this chapter indicates that higher order resources should lead to the presence of a second order autoregressive term in profit time series. Empirical estimation of the model using both classical and Bayesian hierarchical methods indeed provides evidence for the existence of such a second order autoregressive term. The models in these final two chapters are implementations of the formal RBV framework introduced in chapter 1, and thus exemplify the value of such a framework to the strategy field.