Why Are U.S. Companies Dying Off Faster Than Ever?

Why Are U.S. Companies Dying Off Faster Than Ever? Photo (cc) by alanclarkdesign

Companies of all types are dying off twice as fast as they did 30 years ago, according to a new analysis by the Boston Consulting Group.

The news is worse for publicly traded companies, which are dying off faster than ever, according to BCG.

The consulting firm analyzed patterns of entry, growth and exit for 35,000 companies listed on U.S. stock exchanges since 1950. The resulting report is titled “Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations.”

The phenomenon of short-lived companies exists in most industries, BCG found. Only a relative handful of companies make it past the 50-year mark.

Other findings include:

  • In addition to dying younger, companies are more likely to perish at any point.
  • One-tenth of public companies fail each year. That’s a fourfold increase since 1965.
  • Public companies traded in the U.S. now have a five-year exit risk of 32 percent, compared with a 5 percent risk 50 years ago.
  • Mortality risk has grown for companies of all sizes and ages. Even the largest companies face higher exit rates today.

BCG traced the origin of the problem back to the venture-capital funding booms of the mid-1980s and mid- to late-1990s, when many smaller and younger companies entered the public markets.

For a variety of reasons, such companies had more than a 25 percent higher risk of failure than the average company. But those that survived became serious competitors for newer companies, “driving up the death rate among medium-size and large established companies,” BCG reports.

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