Work

Firm aging and internal capital markets

Year: 2025

Type: article

Abstract: Diversified firms differ considerably in the efficiency of their internal capital markets (ICMs) through which scarce capital is allocated across alternative opportunities. This study highlights the role of firm aging in generating this heterogeneity. While aging can positively and negatively influence a firm’s ICM, our analysis of Japanese firms identifies a strong inverse association between allocative efficiency and firm age, which is robust against unobserved heterogeneity, endogeneity of firm scope, and measurement errors in growth opportunities. This association is not attributable to interfirm differences in external capital access, agency costs, or organizational members’ traits. Moreover, this association is particularly salient among firms for which allocative flexibility is crucial for capitalizing on growth opportunities. These results suggest that age-based organizational rigidity is instrumental in lowering older firms’ allocative efficiency.

Source: Pacific-Basin Finance Journal

DOI: 10.1016/j.pacfin.2025.102760

Author: Tatsuo Ushijima

Institution: Keio University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,090

Funders: Asian Finance Association, Research Institute of Economy, Trade and Industry, Japan Society for the Promotion of Science