Firm age and performance

Loderer, Claudio and Waelchli, Urs (2010): Firm age and performance.

Abstract

As firms grow older, their profitability seems to decline. We first document this phenomenon and show that it is very robust. Then we offer two non-exclusive explanations of why firms may age. First, corporate aging could reflect a cementation of organizational rigidities over time. Consistent with that, costs rise, growth slows, assets become obsolete, and investment and R&D activities decline. Second, older age could advance the diffusion of rent-seeking behavior inside the firm. This hypothesis is supported by the poorer governance, larger boards, and higher CEO pay we observe in older firms. Overall, firms seem to face a real senescence problem.

• Item Type: MPRA Paper
• Language: English
• Keywords: firm age; organizational rigidities; rent-seeking; firm life cycle; corporate governance; firm performance
• Subjects: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General

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