Money and Financial Management: Level K


Task: At current rates, how many current Australian companies will still be in business in 2020? 2050? 2100? See ABS: Counts of Australian Businesses for current figures and rates.

Article: Companies don’t last forever

What happens when a company ends? In 2009, Kraft bought Cadbury. In 2001 Ansett, an Australian airline, ran out of money and went insolvent.

In each of these examples, a company disappeared from the stock market. It’s not always a bad end, but it’s an end nonetheless. This raises an interesting question: how long do companies last for?

Madeleine Daepp, a researcher at the Santa Fe Institute in the United States, looked to the stock market for answers. She found records of over 25 000 companies to find patterns. Were old companies better at surviving? Did banks hang around longer than miners?

When she looked at five-year old companies, she noticed that about 7% disappeared that year. Looking at 40-year old companies, she noticed the same thing – roughly 7% of companies that made it to their 40th year didn’t make it to their 41st.

Interestingly, she found the same pattern emerging across all industries. Financial companies disappeared from the stock market at about 7% per year, as did manufacturers and even retail companies.

This annual loss of companies adds up, meaning that, on average, roughly 50% of companies will disappear in their first ten years of business. Only 50% of the survivors will go in the second decade, 50% of those survivors will not make the next decade and so on. This pattern means that although most companies don’t last long, the oldest may be hundreds of years old.

But even old companies sometimes wrap up. In 2006, a Japanese construction company named Kongō Gumi went insolvent and was sold. Kongō Gumi was founded in 578, over 1400 years ago!

More information
The Kongo Gumi story