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 CODES: L25, L20 |