Faculty Scholarly Dissemination Grants


Earnings Persistence and Firm Characteristics in the Biotechnology and Pharmaceutical Industries


School of Accounting


Seidman College of Business

Date Range





Persistently high earnings have been attributed to a sustained competitive advantage that can be resource-based, knowledge-based, due to barriers, or based on industry structure. While the latter has spawned various theories and numerous studies in the organizational and strategic management literature, it only the former that can be reliably measured and tracked. Whatever its source, increasing returns to scale allow some firms to maintain their competitive advantage and enable them to realize persistently high earnings from their investments. In this paper we study firms with persistently high earnings in the biotechnology and pharmaceutical industries. We use the COMPUSTAT database and group firms in each industry into performance subsets before comparing their characteristics. We find that high performing firms form a cohort that is difficult to break into and as a member of that select cohort difficult to leave. Our findings have implications for analysts and those considering investing in these industries. Specifically, we find that most firms with persistently high earnings are larger, grow faster, and spend proportionately less on research & development. In turn, these characteristics contribute to relatively higher operating cash flows, lower bankruptcy risk, higher market-to-book ratios, and higher one-year-out buy-hold stock returns.

Conference Name

10th EBES Conference

Conference Location

Istanbul, Turkey

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