Silverback CEOs: Age, experience, and firm value

• Half of S&P 1500 firms have adopted policies mandating retirement based on age.
• This study investigates the merits of CEO mandatory retirement policies (MRPs).
• MRPs are positively associated with CEO age and negatively related to experience.
• CEO age is significantly negatively related to firm value and performance.
• The negative impact of age exists only for those firms which do not have MRPs.

Approximately half of S&P 1500 firms have adopted policies mandating retirement based on age. This study investigates the merits of CEO mandatory retirement policies (MRPs) using a sample of 12,610 firm-year observations from 2143 unique firms. It also addresses the question of whether CEO age is relevant to the success of an organization. We fail to find consistent evidence that MRPs are intended to limit CEO entrenchment. MRPs are, however, positively associated with CEO age and negatively associated with firm-specific human capital. Further analysis reveals that CEO age is significantly negatively related to firm value, operating performance, and corporate deal-making activity. Splitting our sample according to whether an MRP is in place, we observe that the negative impact of age exists only for those firms which do not have MRPs. We therefore conclude that MRPs represent an effective form of firm governance designed to mitigate the underperformance of older CEOs.