Strategic Management Journal 2010

Rank friction: an ordinal approach to persistent profitability

Thomas C. Powell¹; Ingo Reinhardt^2,3

¹ University of Oxford · ² University of Cologne · ³ CBS International Business School

Abstract

We present an ordinal method for studying persistence in firm profitability. The method is based on the degree of stability in a ranked performance distribution over time. The method gives a numerical index of rank friction (Rf) that can be applied to any ranked data over any period of time. Rf is nonparametric and can be used to test theoretical assumptions in strategic management. We illustrate the method in an empirical study of 40 years of profit data in 12 industries.

DOI

10.1002/smj.871

Sources

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