Urs Waelchli

Firm Age and Performance

As firms grow older, their profitability seems to decline. We first document this phenomenon and show that it is very robust. Then we offer two non-exclusive explanations of why firms may age. First, corporate aging could reflect a cementation of organizational rigidities over time. Consistent with that, costs rise, growth slows, assets become obsolete, and investment and R&D activities decline. Second, older age could advance the diffusion of rent-seeking behavior inside the firm. This hypothesis is supported by the poorer governance, larger boards, and higher CEO pay we observe in older firms. Overall, firms seem to face a real senescence problem.

Long-Term Performance of Initial Public Offerings: The Evidence for Switzerland

A method is provided for simply and effectively increasing monoalkylation of aromatic compounds while also increasing the life of the acid catalyst used to alkylate said compounds. The method and apparatus involve drastically reducing the amount of the alkylation agent present in the reaction mixture, e.g., to at least about a 99:1 excess of aromatic, preferably to about a 999:1 excess of aromatic. In a preferred embodiment, the alkylation agent is introduced intermittently, or in stages, at a ratio of at least 999:1 so that the excess of aromatic may be maintained at all points in the reactor in order to most effectively prolong the life of the catalyst. For continuous operation, a single reactor equipped with multiple injection ports may be used, or multiple reactors may be connected in series adapted so that the alkylation agent may be introduced prior to each reactor.\!

Old Captains at the Helm: Chairman Age and Firm Performance

This paper examines whether the chairmen of the boards (COBs) impose their life cycles on the firms over which they preside. Using a large sample of unlisted firms, we find a robust negative relation between COB age and firm performance. COBs age much like ‘ordinary’ people. Their cognitive abilities deteriorate, and they experience significant shifts in motivation. Deteriorating cognitive abilities are the main driver of the performance effect that we observe. The results imply that succession planning problems in unlisted firms are real. Mandatory retirement age clauses cannot solve these problems.

Firm Rigidities and the Decline in Growth Opportunities

As public firms exploit their growth opportunities following their initial public offering, their assets in place increase, and they organize themselves optimally to operate these assets efficiently, which requires a more formal and less flexible organization than to generate new growth opportunities. Our theory predicts that, as a result of these inflexibilities, firms fail to fully replace their growth opportunities, so that their Tobin’s q falls with age and they invest less as they grow older. With our theory, competition in the market for corporate control and capital markets monitoring increase the rate of decrease in Tobin’s q, while product and labor market competition slow it down. We find empirical support for these predictions. We also find evidence that the decline in q is related to firm rigidities. The Internet appendix is available at http://dx.doi.org/10.1287/mnsc.2016.2478. This paper was accepted by Gustavo Manso, finance.

Corporate Aging and Takeover Risk

Although growth opportunities fade and profitability declines as firms mature, older firms are no more likely to be acquired than young firms are. This article documents and explains that phenomenon. We argue that, because mature organizations are rationally less flexible, they are more costly to integrate and therefore comparatively unattractive acquisition candidates. The evidence supports this explanation of the negative age dependence of takeover hazard. The evidence also shows that negative exogenous shocks to merger benefits further reduce the takeover hazard of mature firms. We test many alternative explanations and find no evidence that they can explain the hazard decline.

Luck and Entrepreneurship

What is luck in the opinion of entrepreneurs, how does it affect decisions, and what role does it play in firm performance? For an answer we rely on a unique survey of 63,202 individuals. Luck perceptions shape decisions. Individuals who believe luck is important are reluctant to become entrepreneurs, and those who do exhibit lower commitment. Luck perceptions also play a crucial role in important entrepreneurial activities. Interestingly, however, luck perceptions rank last in importance among various determinants of overall entrepreneurial performance. One possible reason is that entrepreneurs do not generally pursue radically new ideas but replicate ideas seen elsewhere.

Employment Protection and Investment Opportunities

Even though firms’ innovation efforts dwindle in reaction to weaker employment protection legislation (EPL), we show that the value of their investment opportunities actually increases. The reason is that weaker EPL discourages innovation efforts only in firms with little comparative advantage at innovation. At the same time, however, weaker EPL increases the financial and operating flexibility of firms. This flexibility gain can explain why Tobin’s q increases in reaction to weaker EPL.

Core Abilities and Divestitures

Over time, firms increasingly focus on their core competences. This evolution impairs their ability to manage noncore assets, which they should therefore divest. We test this prediction and find consistent evidence. Moreover, mature firms divest more in response to exogenous technology shocks. These results are induced by structural and process rigidities that firms accumulate over time to better exploit their core competences. Rather than reinvesting, mature divesting firms return money to investors. Finally, the market reaction to divestitures by older firms is positive and positively related to rigidities. These findings contribute to a better understanding of the corporate lifecycle.