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Performance persistence through the lens of chance models

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Liu, Chengwei and Denrell, Jerker (2018) Performance persistence through the lens of chance models. Academy of Management Proceedings, 2018 (1). 10736. doi:10.5465/AMBPP.2018.19 ISSN 0065-0668.

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Official URL: https://doi.org/10.5465/AMBPP.2018.19

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Abstract

To what extent will performance differences persist? Prior studies have suggested that a large proportion of performance variances cannot be explained by systematic factors. The unexplained variance, i.e., chance implies that one should not expect performance differences to persist. In particular, more extreme performances are likely to regress more to the mean. We empirically examine this statistical account of performance persistence in six datasets: National Football League (2001-2016), National Basketball Association (2004-2017); Major League Baseball (1901-2016), Formula One Racing (1996-2015), return on assets of US firms (1980-2010) and Fortune500 firms (1955-2005). Strong regression effects appear in all datasets and we found a trend of decreasing performance persistence of exceptionally performing firms over the past thirty years. Moreover, the effects of regression can be so strong that they generate non-monotonic performance associations and the contexts determine whether and where these rank reversals occur. Chance models that incorporate the contextual factors are developed to account for these anomalies. We conclude by discussing the implications of chance models for theory building and testing in management and how non-monotonic performance associations imply an alternative source of strategic opportunities with illustrations from sport betting.

Item Type: Journal Article
Subjects: Q Science > QA Mathematics
Divisions: Faculty of Social Sciences > Warwick Business School > Behavioural Science
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Regression analysis, Monotonic functions
Journal or Publication Title: Academy of Management Proceedings
Publisher: Academy of Management
ISSN: 0065-0668
Official Date: 1 July 2018
Dates:
DateEvent
1 July 2018Published
9 July 2018Available
5 June 2018Accepted
Volume: 2018
Number: 1
Article Number: 10736
DOI: 10.5465/AMBPP.2018.19
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Date of first compliant deposit: 12 July 2018
Date of first compliant Open Access: 11 October 2018
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