Does firm life cycle impact corporate risk taking and performance?

Abstract

This study examines the current and future performance as well as corporate risk taking (CRT) of firms across the different firm life cycle stages. We find CRT is higher during the introduction and decline stages, and lower during the mature and growth stages. Further, we find a negative relation between CRT and both current and future performance during the introduction and decline stages, but a positive relation during the mature and growth stages. We also examine the moderating effects of investor sentiment, idiosyncratic volatility, and cash flow volatility. Results suggest that during periods of higher investor sentiment CRT increases, and firms respond to sentiment differently during life cycle stages. Idiosyncratic volatility (IV) and cash flow volatility (CFV) play vital roles in determining future risk taking and risk aversion at different firm life cycles stages. Results are robust to alternative specifications.