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Abstract
Firms typically do not make it to old age. We want to know whether the deterioration in performance they experience eventually drives older firms into financial failure. We find that not to be the case. Conditionally and unconditionally, the failure hazard declines as firms grow older. The competing hazard of takeover initially declines as well, yet it increases with age eventually. On average, and consistent with Schumpeter’s gale of creative destruction, older firms are therefore more likely to be absorbed and recycled in other organizations. However, there is little evidence of survival of the fittest at old age, since poor performance and inefficient cost structures actually reduce the takeover hazard of old firms. New assets and plenty of cash have the same effect. It looks as if old clunkers have trouble finding merger partners. We also provide novel evidence about how industry characteristics affect both hazards of financial failure and takeover.
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