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Firm age and performance

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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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26450.

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Date of creation: 10 Apr 2010
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Handle: RePEc:pra:mprapa:26450

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Related research

Keywords: firm age; organizational rigidities; rent-seeking; firm life cycle; corporate governance; firm performance;

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References

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Citations

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Cited by:
  1. Sunil Kanwar, 2013. "Innovation, Productivity and IPRs," Working papers 230, Centre for Development Economics, Delhi School of Economics.
  2. Jan Schiefer & Stefan Hirsch & Monika Hartmann & Adelina Gschwandtner, 2013. "Industry, firm, year and country effects on profitability in EU food processing," Studies in Economics 1309, Department of Economics, University of Kent.
  3. Gschwandtner, Adelina & Hirsch, Stefan, 2011. "Profit Persistence in the Food Industry: Evidence from five European Countries," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114534, European Association of Agricultural Economists.
  4. Sandra M. Leitner & Robert Stehrer, 2013. "R&D and Non-R&D Innovators in the Financial Crisis: the Role of Binding Credit Constraints," wiiw Working Papers 95, The Vienna Institute for International Economic Studies, wiiw.

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