Firm age and performance

Claudio Loderer and Urs Waelchli ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: firm age; organizational rigidities; rent-seeking; firm life cycle; corporate governance; firm performance (search for similar items in EconPapers)
JEL-codes: G30 L20 (search for similar items in EconPapers)
Date: 2010-04-10
New Economics Papers: this item is included in nep-bec and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:26450

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