Limited managerial attention and corporate aging

Loderer, Claudio; Wälchli, Urs; Stulz, René M. (September 2013). Limited managerial attention and corporate aging (Unpublished) (NBER Working Paper 19428). National Bureau of Economic Research

Preview

Text w19428.pdf - Other Available under License BORIS Standard License. Download (489kB) | Preview

As firms have more assets in place, more of management’s limited attention is focused on managing assets in place rather than developing new growth options. Consequently, as firms grow older, they have fewer growth options and a lower ability to generate new growth options. This simple theory predicts that Tobin’s q falls with age. Further, competition in the product market is expected to slow down the decrease in Tobin’s q because it forces firms to look for alternative sources of rents. Similarly, greater competition in the labor market reduces the decrease in Tobin’s q with age because old firms are in a better position to hire employees that can help with innovation. In contrast, competition in the market for corporate control should accelerate the decline because it forces management to focus more on managing assets in place whose performance is more directly observable than on developing growth options where results may not be observable for some time. We find strong support for these predictions in tests using exogenous variation in competition.

Interest & Impact

Downloads

537 since deposited on 02 Dec 2013
23 in the past 12 months

Citations

5 Citations in Web of Science ®
6 Citations in Scopus

Search

in Google Scholar™

Services

Actions (login required)

Edit item

Actions (login required)

Edit item