CEO's age and the performance of closely held firms

Abstract

Research Summary Using detailed ownership and financial information from a large sample of owner‐managed private firms in three Western European countries, this paper examines the relationship between CEO's age and firm's performance. Tracking firms over time, we find that as a CEO ages, the firm experiences lower investment, lower sales growth, and lower profitability, but also higher probability of survival, suggesting a trade‐off between the managerial approaches of younger and older CEOs. These results are stronger in industries more reliant on human capital, such as service and creative industries. Our evidence also suggests that regional financial development moderates the relationship between a CEO's age and a firm's performance by facilitating the reallocation of assets from firms owned by older CEOs to firms owned by younger CEOs. Managerial Summary How do management styles change as CEOs grow older? Using a large firm‐level dataset, we examine the behavior and performance of firms with CEOs of different ages. We find that as a CEO grows older, firm investment, growth, and profitability decline, but probability of survival increases. The results are stronger in industries where human capital and creativity are more important. Regional financial development moderates the age–performance relationship by facilitating reallocation of assets from firms with old CEOs to firms with younger CEOs. Our findings suggest that management styles change with age, as older CEOs tend to emphasize survival at the expense of higher profits and faster growth.

Exploring the Relationship Between Ceo Characteristics and Performance

“…One of them addresses the role of CEO characteristics. Specifically, researchers have examined the role of the form of appointment of the CEO (internal or external) (Karaevli & Zajac, 2013;Hoitash & Mkrtchyan, 2018), academic background (Mintzberg, 2004;Gottesman & Morey, 2010;Miller & Xu, 2019), age (Hambrick & Mason, 1984;Barker & Mueller, 2002;Belenzon et al, 2019), tenure in the firm (Hambrick & Fukutomi, 1991;Henderson, Miller, & Hambrick, 2006), or the country of origin (Crossland & Hambrick, 2011;Ioannou & Serafeim, 2012;Boone, Lokshin, Guenter, & Belderbos, 2019).…”

Firm Growth: A review of the empirical literature

“…Other authors evidence that the age of the entrepreneur is unrelated to the growth of the firm (Cassar, 2006). Belenzon, Shamshur & Zarutskie (2019) found that as an entrepreneur ages the firm experiences lower sales growth. Finally, some studies verify that older entrepreneurs present, on average, better conditions and resources to make their business grow (Fadahunsi, 2012;Reeg, 2013).…”

CEO influence on P2P platform survival: Education and experience do matter!

“…Bertrand and Schoar (2003) demonstrated that manager effects have significant explanatory power for the variance in firm's decision making. Researchers also explored the impacts of CEO demographics and psychological traits on firm decision making, including age (Belenzon, Shamshur, & Zarutskie, 2019; Hambrick, 2007; Hambrick & Fukutomi, 1991), gender (Anderson, 2003; Berger, Kick, & Schaeck, 2014; Datta & Guthrie, 1994; Huang, 2013; Manner, 2010), tenure (Hambrick & Fukutomi, 1991; Hirshleifer, 1993; Miller, 1991; Yudan, 2010), risk attitude, and overconfidence (Cain & McKeon, 2016; Graham et al, 2013; Huang, Tan, & Faff, 2016; Malmendier, Tate, & Yan, 2011).…”