Limited Managerial Attention and Corporate Aging

Claudio F. Loderer, René Stulz and Urs Waelchli
Additional contact information
Claudio F. Loderer: University of Berne, European Corporate Governance Institute (ECGI), and Swiss Finance Institute
Urs Waelchli: Rochester-Bern Executive Programs and University of Rochester

No 13-46, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: As firms have more assets in place, more of management’s limited attention is focused on managing assets in place rather than developing new growth options. Consequently, as firms grow older, they have fewer growth options and a lower ability to generate new growth options. This simple theory predicts that Tobin’s q falls with age. Further, competition in the product market is expected to slow down the decrease in Tobin’s q because it forces firms to look for alternative sources of rents. Similarly, greater competition in the labor market reduces the decrease in Tobin’s q with age because old firms are in a better position to hire employees that can help with innovation. In contrast, competition in the market for corporate control should accelerate the decline because it forces management to focus more on managing assets in place whose performance is more directly observable than on developing growth options where results may not be observable for some time. We find strong support for these predictions in tests using exogenous variation in competition.

Keywords: firm age; firm performance; corporate governance; firm life cycle; competition; credit constraints (search for similar items in EconPapers)
JEL-codes: G30 L20 (search for similar items in EconPapers)
Pages: 64 pages
Date: 2013-09, Revised 2013-11
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Citations: View citations in EconPapers (2)

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http://ssrn.com/abstract=2320758 (application/pdf)

Related works:
Working Paper: Limited Managerial Attention and Corporate Aging (2013)
Working Paper: Limited Managerial Attention and Corporate Aging (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1346

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