Evaluation of the Effect of Company's Life Cycle on the Cost of Equity

Mehdi Maranjory,Samira Keykha

doi:10.5539/mas.v10n12p241

Abstract

The aim of this study is to investigate effect of company's life cycle on cost of stockholders , in this regard, three hypotheses were developed that a sample of 118 companies during the period of 2009 to 2015 were selected in order test them and regression model and panel data was used to analyze hypotheses. In this study, Dickinson (DeAngelo et al., 2006; Dickinson, 2011; Rahmanian, Moghaddam et al., 2014) company life cycle criteria has been used to separate companies to different steps of company life cycle and the Gordon growth model has been used to measure cost of stockholders. The results show that the cost of stockholders has significant difference with each other in mature phase of Company life cycle Compared with recession of company's life cycle. The results also show that cost of stockholders have significant difference with each other compared with recession of company's life cycle in the growth stage of companies life cycle . Finally, the results show that cost of stockholders have significant difference with each other in the Company life cycle birth and decline compared with the record of company's life cycle.

Highlights

The cost of capital is one of the basic concepts in finance literature field
Which reflects the negative impact of birth stage and positive impact of decline and stagnation stage on the cost of stockholders, According to the t statistic the coefficients of birth, decline and stagnation stage variables are significant.In other words, the results show that in the decline and stagnation stage the cost of stockholders is low but cost of stockholders sensitivity in stagnation stage is more than decline stage and in birth stage cost of stockholders is low
According to the above we can be considered third hypothesis. This means that the cost of stockholders in the company's birth and decline life cycle have significant differences with each other compared with the company's life cycle stagnation

Summary

Introduction

The cost of capital is one of the basic concepts in finance literature field. The cost of capital plays an important role in financing decisions. Garner (Gardner 1965, Moghaddam, Jahadakbar et al 2016) stated that the company has its unique life cycle .the concept was used in human sciences studies and research including microeconomics, management, finance and accounting (Yan & Zhao, 2009; Moghaddam, Skoracki et al 2016; Raad, Moghaddam et al 2016). Much of this content is based on existence of different stages in company's life cycle and the unique characteristics of each stage with other stage (Cao, 2012)

Objectives

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Results

Conclusion