The end of the corporate life cycle
Abstract
This paper asks how takeover and failure hazards change
as listed firms get older. The hypothesis is that they
increase because firms gradually run out of growth
opportunities. We find the opposite. Both takeover and
failure hazard drop significantly with age. The decline in
takeover hazard can be explained with Loderer, Stulz, and
Waelchli’s (2013) “buggy whip makers” hypothesis:
Because old firms are comparatively well-managed and
are affected by limited agency problems, on average, they
offer little value added potential to acquirers. Failure
hazard drops because to learning. The results are robust
to various alternative interpretations and cannot be
explained by unobserved heterogeneity. While hazards
decline with age, they do not go to zero. This explains
why, eventually, all listed firms disappear
as listed firms get older. The hypothesis is that they
increase because firms gradually run out of growth
opportunities. We find the opposite. Both takeover and
failure hazard drop significantly with age. The decline in
takeover hazard can be explained with Loderer, Stulz, and
Waelchli’s (2013) “buggy whip makers” hypothesis:
Because old firms are comparatively well-managed and
are affected by limited agency problems, on average, they
offer little value added potential to acquirers. Failure
hazard drops because to learning. The results are robust
to various alternative interpretations and cannot be
explained by unobserved heterogeneity. While hazards
decline with age, they do not go to zero. This explains
why, eventually, all listed firms disappear
Date Issued
2013-01-25
Publication Type
Conference Item
Language(s)
en
Additional Credits
Title of Event
Access(Rights)
open.access