The end of the corporate life cycle

This paper asks how takeover and failure hazards change as listed firms get older. The hypothesis is that they increase because firms gradually run out of growth opportunities. We find the opposite. Both takeover and failure hazard drop significantly with age. The decline in takeover hazard can be explained with Loderer, Stulz, and Waelchli’s (2013) “buggy whip makers” hypothesis: Because old firms are comparatively well-managed and are affected by limited agency problems, on average, they offer little value added potential to acquirers. Failure hazard drops because to learning. The results are robust to various alternative interpretations and cannot be explained by unobserved heterogeneity. While hazards decline with age, they do not go to zero. This explains why, eventually, all listed firms disappear