Corporate Aging and Takeover Risk

Abstract

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.