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Rank friction: an ordinal approach to persistent profitability
Author(s) -
Powell Thomas C.,
Reinhardt Ingo
Publication year - 2010
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.871
Subject(s) - profitability index , nonparametric statistics , rank (graph theory) , econometrics , profit (economics) , stability (learning theory) , mathematics , empirical research , index (typography) , rank correlation , statistics , economics , computer science , operations research , microeconomics , combinatorics , machine learning , finance , world wide web
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. Copyright © 2010 John Wiley & Sons, Ltd.