Like milk or wine: Does firm performance improve with age?

Our empirical literature review shows that little is known about how firm performance changes withage, presumably because of the paucity of data on firm age. For Spanish manufacturing firms, weanalyse the firm performance related to firm age between 1998 and 2006. We find evidence thatfirms improve with age, because ageing firms are observed to have steadily increasing levels ofproductivity, 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 andproductivity. 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 lowerprofitability levels (when other variables such as size are controlled for), and also that they appear tobe less capable to convert employment growth into growth of sales, profits and productivity.