Like milk or wine: Does firm performance improve with age?
Little is known about how firm performance changes with age, presumably because of the paucity of data on firm age. We analyze the performance of a panel of Spanish manufacturing firms between 1998 and 2006, relating it to firm age. 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.
References listed on IDEAS
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- Mercedes Teruel-Carrizosa, 2010. "Gibrat’s law and the learning process," Small Business Economics, Springer, vol. 34(4), pages 355-373, May.
- Alexander Coad & Rekha Rao, 2007.
"Firm Growth and R&D Expenditure,"
Papers on Economics and Evolution
2007-10, Philipps University Marburg, Department of Geography.
- Toke Reichstein & Michael S. Dahl & Bernd Ebersberger, & Morten Jensen, 2006. "The Devil Dwells in the Tails A Quantile Regression Approach to Firm Growth," DRUID Working Papers 06-34, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
- José Fariñas & Lourdes Moreno, 2000. "Firms' Growth, Size and Age: A Nonparametric Approach," Review of Industrial Organization, Springer, vol. 17(3), pages 249-265, November.
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