Impact of asset preferences on firm performance over its life cycle: Is agency theory or neo‐classical theory more relevant?

Abstract

This study extends Dickinson's (2011) firm life cycle classification approach by linking it with the asset preferences and firm performance. This study also resolves the contention between agency theory and neo‐classical theory. Based on the data of S&P 500 firms from 2000 to 2019, our results show: First, the effect of current assets on basic earnings per share (BEPS), return on assets (ROA) and Tobin's Q ratio (TQR) decreases from the introduction to decline stage. Second, the influence of fixed assets on TQR increases from the introduction to the declining stage. Our findings suggest that both theories are relevant, and asset acquisition influences the productivity and performance of the firms.