MIT’s Technology Review pitches an argument by Richard N Foster, well known consultant, which uses exits from the S&P 500 to show that companies suffer shorter lifespans these days and are dropping off indices faster than they used to.
Foster includes a chart showing a seven year moving average of corporate lifespans including a forecast beyond the year 2025. He blames the increasing pace of technology and the need for rapid innovation for the losses.
Changes to the S&P 500, the Dow and other indices report shifts in the corporate world and rather than causing them. However, there is more going on here than the speed of innovation and technology. About two-thirds of all exits from the S&P 500 are caused by M&A; and, more often than not, both the acquirer and the target are in the S&P 500. [Revamped Dow ETF]
When a company is acquired, it may drop off the index but its activities, products, revenues and (hopefully) profits remain – and stay in the index if the acquirer is in the index.