Corporate Aging and Takeover Risk
Review of Finance, Forthcoming
54 Pages Posted: 6 Jun 2013 Last revised: 25 Nov 2014
Date Written: November 24, 2014
Although growth opportunities fade and profitability declines as firms mature, older firms are no more likely to be acquired than young firms are. This paper documents and explains that phenomenon. We argue that, because mature organizations are rationally less flexible, they are more costly to integrate and therefore comparatively unattractive acquisition candidates. The evidence supports this explanation of the negative age dependence of takeover hazard. The evidence also shows that negative exogenous shocks to merger benefits further reduce the takeover hazard of mature firms. We test many alternative explanations and find no evidence that they can explain the hazard decline.
Keywords: takeovers, financial distress, life cycle
JEL Classification: G30, L20
Suggested Citation: Suggested Citation