Like Milk or Wine: Does Firm Performance Improve with Age?

XREAP Working Paper No. 2010-10

40 Pages Posted: 22 Apr 2011

See all articles by Alex Coad

Alex Coad

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

Agustí Segarra-Blasco

Universitat Rovira i Virgili

Mercedes Teruel

Rovira i Virgili University

Date Written: September 1, 2010

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.

Keywords: firm age, firm growth, LAD, financial structure, vector autoregression

JEL Classification: L25, L20

Suggested Citation

Coad, Alex and Segarra-Blasco, Agustí and Teruel, Mercedes, Like Milk or Wine: Does Firm Performance Improve with Age? (September 1, 2010). XREAP Working Paper No. 2010-10, Available at SSRN: https://ssrn.com/abstract=1815028 or http://dx.doi.org/10.2139/ssrn.1815028

Alex Coad (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

Agustí Segarra-Blasco

Universitat Rovira i Virgili ( email )

Campus Sescelades, Carretera de Valls s/n
43006 Tarragona, Tarragona 43007
Spain

Mercedes Teruel

Rovira i Virgili University ( email )

Av. Universitat 1
Tarragona, 43204
Spain

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