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Firm age and performance

  • Loderer, Claudio
  • Waelchli, Urs

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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File URL: http://mpra.ub.uni-muenchen.de/26450/1/MPRA_paper_26450.pdf
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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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