The age effect in entrepreneurship: founder tenure, firm performance, and the economic environment

This chapter tests the effect of founder age on firm performance in a large sample of Italian manufacturing SMEs run by long-tenured founders. In contrast with the declining trend observed for hired CEOs, our empirical results show the existence of an inverted U-shaped relationship between founder tenure and firm performance. Founder tenure has a positive effect on performance at the beginning of the firm life cycle, after which it declines and turns negative during maturity. In the sample average, return on assets (ROA) peaks after about 10 years from the birth of the firm. When the role of the economic environment is taken into account, the match between founder and environment is less likely to be achieved by long-tenured founders than their counterparts with lower tenures. Peak performance year reduces drastically in high-turbulence sectors, whereas it increases substantially in low-turbulence sectors. These results suggest that a long-tenured founder structure of governance may actually harm performance when the turbulence in the economic environment is significant and requires leadership changes. From a policy viewpoint, the importance of an efficient market for corporate control is crucial for assuring an optimal match between the founder skills and the environment.