Abstract

http://ssrn.com/abstract=2320758
 
 

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Limited Managerial Attention and Corporate Aging


Claudio F. Loderer


University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI); Swiss Finance Institute

Rene M. Stulz


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Urs Waelchli


University of Berne - Institute for Financial Management

September 1, 2013

ECGI - Finance Working Paper No. 381
Fisher College of Business Working Paper No. 2013-03-13
Charles A. Dice Center Working Paper No. 2013-13
Swiss Finance Institute Research Paper No. 13-46

Abstract:     
As firms have more assets in place, more of management’s limited attention is focused on managing assets in place rather than developing new growth options. Consequently, as firms grow older, they have fewer growth options and a lower ability to generate new growth options. This simple theory predicts that Tobin’s q falls with age. Further, competition in the product market is expected to slow down the decrease in Tobin’s q because it forces firms to look for alternative sources of rents. Similarly, greater competition in the labor market reduces the decrease in Tobin’s q with age because old firms are in a better position to hire employees that can help with innovation. In contrast, competition in the market for corporate control should accelerate the decline because it forces management to focus more on managing assets in place whose performance is more directly observable than on developing growth options where results may not be observable for some time. We find strong support for these predictions in tests using exogenous variation in competition.

Number of Pages in PDF File: 64

Keywords: firm age, firm performance, corporate governance, firm life cycle, competition, credit constraints

JEL Classification: G30, L20

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Date posted: September 6, 2013 ; Last revised: November 13, 2013

Suggested Citation

Loderer, Claudio F. and Stulz, Rene M. and Waelchli, Urs, Limited Managerial Attention and Corporate Aging (September 1, 2013). ECGI - Finance Working Paper No. 381; Fisher College of Business Working Paper No. 2013-03-13; Charles A. Dice Center Working Paper No. 2013-13; Swiss Finance Institute Research Paper No. 13-46. Available at SSRN: http://ssrn.com/abstract=2320758 or http://dx.doi.org/10.2139/ssrn.2320758

Contact Information

Claudio F. Loderer
University of Berne - Institute for Financial Management ( email )
Engehaldenstrasse 4
Bern, CH-3012
Switzerland
+41 31 631 37 75 (Phone)
+41 31 631 84 21 (Fax)
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
HOME PAGE: http://www.sfi.ch

Rene M. Stulz (Contact Author)
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Urs Waelchli
University of Berne - Institute for Financial Management ( email )
Engehaldenstrasse 4
Bern, CH-3012
Switzerland
+41 31 631 4091 (Phone)
+41 31 631 8421 (Fax)
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