Firm Age: A Survey
Journal of Evolutionary Economics, 28(1), 13-43, 2016
36 Pages Posted: 17 Nov 2020
Date Written: November 1, 2016
This survey paper synthesizes theory and evidence on processes of firm-level aging. We discuss why anthropomorphic analogies are not helpful for understanding firm aging, because of differences in population pyramid shapes (with around 50% of firms exiting after just 3 years), no upper bound on firm ages, and no deterministic change in performance with firm age. We discuss the liabilities of newness, adolescence, and senescence and obsolescence, and define what we mean by the direct and indirect causal effects of age. Our causal model also helps clarify previous confusion about why controlling for size in regressions of firm age on survival can reverse the results (Simpson’s paradox and the ‘bad control’ problem). While aging processes can occur at many levels (employee-level, firm-level, cohort-level, etc), we focus on the firm-level. We summarize empirical work on firm age and conclude that the most interesting age effects occur within the first 5-7 years, which underscores the importance of datasets that do not under-represent young firms.
Keywords: Firm age, liability of newness, liability of obsolescence, firm size, survival
JEL Classification: L25
Suggested Citation: Suggested Citation