Old captains at the helm: Chairman age and firm performance

This paper examines whether the chairmen of the boards (COBs) impose their life cycles on the firms over which they preside. Using a large sample of unlisted firms, we find a robust negative relation between COB age and firm performance. COBs age much like 'ordinary' people. Their cognitive abilities deteriorate, and they experience significant shifts in motivation. Deteriorating cognitive abilities are the main driver of the performance effect that we observe. The results imply that succession planning problems in unlisted firms are real. Mandatory retirement age clauses cannot solve these problems.

► We study the relation between chairman age and firm performance in unlisted firms. ► Firm performance declines with chairman age. ► Chairmen appear to impose their life-cycles on the firms they lead. ► The age effect is mainly due to declining cognitive abilities. ► Mandatory retirement age cannot solve the apparent succession planning problem.