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Age of Firms: Irrelevance Proposition

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DOI: 10.4236/me.2019.105097    9 Downloads   21 Views


Age of firms is used with an alarming regularity in various studies in the fields of organizational behavioral, accounting and corporate finance/law/governance, industrial economics and the like. The variable “firm age” is typically called a control variable. Why it is necessary or what it controls is infrequently explained. The variable’s statistical significance or insignificance is duly noted; explanation thereof is hardly ever provided. This paper demonstrates that this variable does not provide any sensible information its users would have us believe. The paper provides numerous examples demonstrating that managerial discretion changes the nature and value of the firm, thereby negating the value of the variable. We recommend that a conceptual foundation be secured before using the variable and it not be wantonly used as a control or fixed-effect variable. Researchers would do well to report the effect size instead of merely statistical significance at some level.

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Vora, G. (2019) Age of Firms: Irrelevance Proposition. Modern Economy, 10, 1446-1478. doi: 10.4236/me.2019.105097.

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