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Firm age and performance

Author

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  • Loderer, Claudio
  • Waelchli, Urs

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.

Suggested Citation

  • Loderer, Claudio & Waelchli, Urs, 2010. "Firm age and performance," MPRA Paper 26450, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26450
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    More about this item

    Keywords

    firm age; organizational rigidities; rent-seeking; firm life cycle; corporate governance; firm performance;
    All these keywords.

    JEL classification:

    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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