Firm Age and Performance
52 Pages Posted: 19 Feb 2009 Last revised: 26 Aug 2012
Date Written: April 30, 2010
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.
Keywords: firm age, organizational rigidities, firm life cycle, corporate governance, firm performance
JEL Classification: G30, L20
Suggested Citation: Suggested Citation