Quitting Time: Manager's Age and the Performance of Closely Held Firms

Using detailed ownership and financial information available for a large sample of owner-managed private firms in three West European countries, this paper examines the relationship between manager's age and firm's performance. Tracking firms over time, we find that as a manager ages, the firm experiences slower growth and a decline in investment, especially when a manager gets closer to retirement age. These results are stronger in industries more reliant on human capital, such as service and creative industries. Moreover, older managers are less likely to adopt managerial practices associated with better firm performance. Regional financial development moderates the relationship between a manager's age and a firm's performance. Fewer firms in more financially developed regions have older managers and in those regions the adverse effect of older managers is less pronounced. Our findings point to the importance of financial markets in facilitating the reallocation of assets from firms with older to firms with younger managers.