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Like milk or wine: Does firm performance improve with age?

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  • Alex Coad

    ()

  • Agustí Segarra
  • Mercedes Teruel

Abstract

Our empirical literature review shows that little is known about how firm performance changes with age, presumably because of the paucity of data on firm age. For Spanish manufacturing firms, we analyse the firm performance related to firm age between 1998 and 2006. We find evidence that firms improve with age, because ageing firms are observed to have steadily increasing levels of productivity, higher profits, larger size, lower debt ratios, and higher equity ratios. Furthermore, older firms are better able to convert sales growth into subsequent growth of profits and productivity. On the other hand, we also found evidence that firm performance deteriorates with age. Older firms have lower expected growth rates of sales, profits and productivity, they have lower profitability levels (when other variables such as size are controlled for), and also that they appear to be less capable to convert employment growth into growth of sales, profits and productivity.

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Paper provided by Philipps University Marburg, Department of Geography in its series Papers on Economics and Evolution with number 2010-06.

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Date of creation: Jul 2010
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Handle: RePEc:esi:evopap:2010-06

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Keywords: firm age; firm growth; LAD; financial structure; vector autoregression Length 31 pages;

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Cited by:
  1. Marco Capasso & Elena Cefis & Alessandro Sapio, 2013. "Reconciling quantile autoregressions of firm size and variance–size scaling," Small Business Economics, Springer, Springer, vol. 41(3), pages 609-632, October.
  2. Giorgio Barba Navaretti & Davide Castellani & Fabio Pieri, 2012. "Age and firm growth. Evidence from three European countries," Working Papers, Department of Applied Economics II, Universidad de Valencia 1217, Department of Applied Economics II, Universidad de Valencia.
  3. Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2010. "Are small firms more sensitive to financial variables?," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/151623, Universitat Rovira i Virgili, Department of Economics.
  4. Stel, Nora & Naudé, Wim, 2013. "Public-Private Entanglement: Entrepreneurship in a Hybrid Political Order, the Case of Lebanon," IZA Discussion Papers 7795, Institute for the Study of Labor (IZA).
  5. Coad, Alex & Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2013. "Innovation and firm growth: Does firm age play a role?," Working Papers, Universitat Rovira i Virgili, Department of Economics 2072/211886, Universitat Rovira i Virgili, Department of Economics.
  6. Antonio Manresa & Ferran Sancho, 2012. "Leontief versus Ghosh: two faces of the same coin," Working Papers, Xarxa de Referència en Economia Aplicada (XREAP) XREAP2012-18, Xarxa de Referència en Economia Aplicada (XREAP), revised Oct 2012.
  7. García-Quevedo, José & Mas-Verdú, Francisco & Montolio, Daniel, 2011. "What type of innovative firms acquire knowledge intensive services and from which suppliers?," INGENIO (CSIC-UPV) Working Paper Series, INGENIO (CSIC-UPV) 201108, INGENIO (CSIC-UPV).
  8. Michaela Fuchs, 2011. "How important are agglomeration effects for plant performance? Empirical evidence for Germany," ERSA conference papers ersa11p912, European Regional Science Association.
  9. Alex Coad & Christina Guenther, 2012. "Age, diversification and survival in the German machine tool industry, 1953-2002," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2011-23, Philipps University Marburg, Department of Geography.

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