11. An Analysis of the Effects of Aging and Experience on Firms’ Performance

This study identifies the effects of a firm’s age on its performance as measured by labor productivity and total value of sales using survey based panel data of large and medium scale manufacturing firms in Ethiopia. The analysis is based on 6370 firms and 10,231 firm-years during 2010–15 distributed all over the nation with Addis Ababa, Oromia, SNNP, Amhara and Tigray regions hosting over 90% of these firms. The results of the fixed-effects (unbalanced) panel data estimation technique fail to show a statistically significant relationship between a firm’s age and its performance irrespective of the choice of the dependent variable and different model specifications. The coefficient of the average marginal effect of age is negative, but insignificant, for both measures of a firm’s performance. The study also shows that the effect of a firm’s size on its performance depends on the choice of the dependent variable. Firm size is predominantly associated with lower labor productivity but higher sales value. When it comes to the role of other control variables capital intensity and wage expenditure have a positive and significant effect on a firm’s performance and the result is invariant to the method of estimation. The effect of a change in the gender composition of the owner on a firm’s performance is found to be negative and significant for the OLS regression but insignificant for the fixed-effects model. Finally, the role of region of operation on a firm’s performance is significant and positive only in the labor productivity regression. The lack of empirical support for the effect of a firm’s age on its performance shows that the ‘learning by doing’ affect is weak and improving this could be a possible option for reducing the high rates of firms’ entries and exits observed in the survey.