Firm Life Research Articles

CEO remuneration, financial distress and firm life cycle

This study investigates the association between CEO remuneration and firms' state of financial distress and whether that relationship varies systematically across firms' life cycle stages. Using a sample of 6508 firm-year observations over the 2004–2021 period, we find that a firm's state of financial distress is negatively related to CEO remuneration. We also find that this relationship holds in the mature and old stages of a firm life cycle, but not in the young phase. Our findings are consistent with the predictions of resource-based and efficient contracting theories, and are robust to endogeneity tests. Overall, our results show that CEO remuneration is a significant determinant of corporate financial distress.

Firm Life Cycle and Cash Policy

This study aims to examine how the stages of the company's life cycle affect the company's cash policy. This study focuses on the stages of the firm's life cycle which includes the cycle stages of introduction, growth, maturity and shakeout against cash policies adopted by the company. This research is considered important because cash policy is influenced by company characteristics, namely the life cycle in which the determination of the company's life cycle is based on cash flow from operating, investing, and financing activities. This study uses panel data regression with a sample of the companies selected are manufacturing companies listed on the Indonesia Stock Exchange with an observation period from 2014-2019. By using a sample of 90 manufacturing companies, the results prove that the company has a large enough cash balance when the company is in the mature and shakeout cycle stages, while the introduction and growth cycle stages do not prove that the cash balance will be greater or less

The Firm Life Cycle and Debt Maturity Structure: Evidence from ASEAN Countries

This study aims to examine the firm’s debt maturity structure policy across the firm life cycle stage in five ASEAN countries, namely Indonesia, Malaysia, Singapore, Thailand and Vietnam. The Firm life cycle stages are classified based on its cashflow pattern into four stages, namely introduction, growth, mature, and decline. The study was conducted using 2769 samples of non-financial listed companies in these five ASEAN countries in the period 2007-2020. The data analysis method used is a panel data model with a fixed effect. The results of the study from the research conducted show that the company's life cycle in the introduction and growth stages chooses to use long-term debt compared to companies in the mature and decline stages. It’s possible that during introduction and growth stages, firms are overloaded with many investment opportunities that they want to invest. Internal funds might not be enough for them and they opt to acquire external debt such as long-term debt. DOI: 10.26905/jkdp.v27i2.9958

Emerging IT investments and firm performance: a perspective of the digital options

PurposeThis study aims to explore the mediating effect of digital options on the relationship between emerging information technology investments (ITIs) and firm performance (FP). In particular, it analyses the performance impacts of investments in five emerging technologies of IT or non-IT firms.Design/methodology/approachSecondary data are collected from Chinese A-share listed companies from 2010 to 2018. The authors propose an econometric model focusing on the impact of ITIs on a firm’s market value and profit. A propensity score matching model is applied to control endogeneity.FindingsThe ITIs’ effect on FP is found to be completely mediated by digital options, and the reach of digital options plays a more positive role in the relationship between ITIs and Tobin’s Q, whereas the richness of digital options is stronger between ITIs and return on net assets (ROE). The group study shows that the impact of process technologies such as cloud computing and the Internet of Things has a more profound impact on Tobin’s Q, and the knowledge technologies represented by artificial intelligence, blockchain and big data strongly affect ROE. In addition, the positive relationship between ITIs and FP is unrelated to IT/non-IT firms.Research limitations/implicationsFirst, the data are based on 219 publicly announced emerging ITIs in China and thus may not be generalizable to other cultural/national contexts. Second, there is a lack of a large sample data set of emerging ITI information in China, and the duration of this study is constrained to the relatively short rise of emerging technologies.Practical implicationsThis study provides firm decision-makers with practical implications. The results imply that the effect of ITIs on FP depends on digital options, so both IT firms (e.g., Big Tech giants) and non-IT firms (e.g., incumbents) should discover how to balance firm value and profit in their management of emerging technology investment projects with digital options thinking.Originality/valueTo the best of the authors’ knowledge, this is the first empirical study to investigate the relationship between ITIs and FP from the perspective of digital options, exploring five emerging technologies and considering firm life, size, and state ownership in a sample of Chinese listed firms.

Firm failure and the exploration/exploitation dilemma: The role of firm life cycle

The survival and prosperity of firms are contingent on their ability to constantly adjust to the state and dynamics of their environments by swiftly embracing the right combination of generic exploration and exploitation strategies. We propose a novel theoretical model linking the pursuit of exploration and exploitation approaches with firm failure in the medium term, stressing the role of the firm life cycle that substantively shapes the underlying relationships. The model is empirically tested using the firm-level data from a large panel dataset from 1988 to 2019 across multiple industries, revealing the moderating impact of the five stages of the firm life cycle (and the transition period between them) on the relation between exploration/exploitation strategies and the likelihood of firm failure. The findings indicate that exploration has a significant negative impact on the likelihood of firm failure during the growth, maturity, and transition stages; however, it significantly increases the likelihood of firm failure in the introduction, shakeout, and decline stages. Exploitation, on the other hand, has a significant negative impact on the likelihood of firm failure in the introduction and maturity stages yet amplifies the probability of failure in the transition phase.

Does firm life cycle stage affect investor perceptions? Evidence from earnings announcement reactions

Does firm life cycle stage affect investor perceptions? Evidence from earnings announcement reactions

Does ESG always improve corporate performance? Evidence from firm life cycle perspective

In this study, drawing on firm life cycle theory, we focus on the corporate performance of Environmental, Social, and Governance (ESG) engagement via financial stress and consider the moderate effect of transparency, financial slack, and environmental uncertainty. The industry-year fixed effects panel regression analysis is executed based on the data including 11,742 firm-year observations for 1,486 Chinese A-share listed companies from 2010 to 2020. The results show that ESG performance can significantly improve corporate performance at all life cycle stages, especially when the corporate is in the growth stage. Moreover, the mechanism analysis shows that the financial risk mediates the relation between ESG performance and corporate performance for the corporates in the growth and maturity stages. The association between ESG and corporate performance is more pronounced when corporate information disclosure quality is high. Moreover, financial slack moderates and undermine the association between ESG and corporate performance in the maturity stages. Similarly, for the maturity and decline stages of corporate, environmental uncertainty moderates and undermines the association between ESG and corporate performance. Besides offering scientific evidence for the role of ESG ratings in relieving financial pressure and promoting corporate performance in growth and maturity stages, the results can also inform the regulators and/or investors of the benefit of engaging in corporates sustainability transition, which has implications for both the success of the regulatory regime and the advancement of long-term investment philosophy.

Accruals and firm life cycle: Improving regulatory earnings management detection

Regulators have invested considerable energy into developing analytical tools to better detect earnings management. We propose that firms in similar life cycle stages (LCSs) face similar strategic concerns, managerial pressures, growth prospects, etc., and that the commonality in these factors contribute to the “normal” accruals generating process. Consistent with this prediction, we simulate various earnings management conditions and find that accruals models are misspecified in detecting manipulation within particular LCSs; in particular, introduction, shakeout, and decline firms are over-identified as manipulators, while growth and mature firms are under-identified as manipulators when LCS is not used to estimate accruals. Weighted average performance across life cycle stages reveals that LCS estimation of discretionary accruals substantially improves successful detection and reduces Type I errors relative to other grouping alternatives. The combined improvement across both Type I and Type II errors is over 70% for both the modified Jones and discretionary revenue models of accruals-based earnings management.

The Effect of Firm Life Cycle on the Relationship between Market Stock Return and Accounting Earnings, Losses and Book Value per Share: Evidence from Jordan

This study aims at examining whether the relationship between market stock return and earnings (losses) per share and book value per share varies according to each and both of the sign of net income and the stage the firm is going through within its life cycle. The study used a sample of 33 industrial public shareholding companies listed in Amman Stock Market (164 observations) during the period 2011-2019.
 To achieve the objectives of the study, the researchers executed a number of simple -and multiple- regression models of the returns-earnings (losses) and book value to examine the relationship from various dimensions: (1) the explanatory power of earnings (losses) per share, (2) the explanatory power of book value per share, (3) the incremental explanatory power of book value per share over that of earnings (losses) per share. The models were executed for various sub-samples constructed according to the sign of net income and the stage in which the company is going through within its life cycle, separately and combined.
 The results of the sub-samples which were constructed based on both the sing of net income and the stage which the company is going through revealed the following: (1) earnings per share and book value per share have no information content for profitable companies in the introduction and growth stages, (2) the main explanatory variable for market stock return for profitable companies in the maturity stage is earnings per share, (3) the only explanatory variable for market stock return for profitable companies in the shake-out and decline stages is earnings per share, (4) losses per share and book value per share separately have no information content for losing companies in the introduction and growth stages, (5) losses per share and book value per share have information content when both are entered together in the model, (6) only book value per share has information content for losing companies in the maturity stage, (7) loss per share and book value per share separately and together have no information content for losing companies in the shake-out and decline stages.
 The results suggest that the reasons behind the low explanatory power of the relationship between market stock return and earnings per share are the presence of losses, the failure to take into account the stage in which the company is going through in its life cycle and the failure to consider the book value per share in the model of the relationship, which leads to an error in the specification of the relationship, especially if the result of operations is a loss. These results are expected to assist stakeholders in making rational decisions and recommendations.

Current Status and Prospect of Research on the Functional Background Heterogeneity of Top Management Team

The functional background heterogeneity of top management team has gradually attracted the attention of research in the field of management, and it has also affected firm practice. This paper sorts out the current research status of the heterogeneity of top management team functional background and its relationship with firm value, and finally points out the limitations of existing research from the perspective of firm life cycle. Future research can build a theoretical model of the impact of the functional background heterogeneity of top management team on firm value in different life cycle stages, explore its specific effects, promote the idea of maximizing firm value, and enhance market competitiveness.

The relationship between firm financial distress, firm life cycle and firm cash holdings of non-financial listed Vietnamese companies

The relationship between firm financial distress, firm life cycle and firm cash holdings of non-financial listed Vietnamese companies

The impact of firm life cycle on abnormal earnings in financial statement quality: a evidence from Vietnam

The impact of firm life cycle on abnormal earnings in financial statement quality: a evidence from Vietnam

Environmental, social and governance and the firm life cycle: evidence from the Brazilian market

RESUMO O estudo analisou a associação entre o environmental, social and governance (ESG) e os estágios de ciclo de vida das empresas brasileiras de capital aberto listadas na B3 S.A. - Brasil, Bolsa, Balcão (B3) no período de 2010 a 2020. Explora-se uma lacuna teórica sobre a relação dos estágios de ciclo de vida das empresas com iniciativas ESG no Brasil, um país emergente. As evidências são relevantes para a compreensão de como os estágios do ciclo de vida funcionam como sinalizadores do nível de ações ESG das companhias e para demonstrar como o mercado percebe essas ações e sua capacidade de geração de valor. A pesquisa traz insights de que os fundamentos da teoria dos estágios de ciclo de vida da firma funcionam como indicadores para diversas perspectivas organizacionais, até mesmo para as práticas ESG. A amostra foi composta por 109 empresas cujos dados foram coletados na Thomson Reuters® e analisados por meio de regressão múltipla. Para análise dos ciclos de vida, utilizou-se o modelo proposto por Dickinson (2011). Cabe destacar que os dados também foram analisados utilizando o efeito fixo como estimação do modelo econométrico, porém houve perda da significância estatística na relação encontrada, possivelmente devido à seleção da amostra realizada no painel desbalanceado. A partir da amostra analisada e dos modelos econométricos utilizados, os resultados indicam que as empresas em estágio de nascimento e turbulência apresentam menores níveis de práticas ESG, notadamente nos pilares ambiental e social, se comparadas às empresas em estágio de maturidade. Os achados também evidenciaram que as iniciativas ESG no mercado de capitais brasileiro estão associadas com medidas de rentabilidade, liquidez, endividamento, valor de mercado e número de analistas das organizações. A pesquisa contribui para a análise da associação entre a adoção de práticas ESG e os estágios de ciclo de vida das empresas em um mercado emergente, com reflexões aos stakeholders a respeito do direcionamento de recursos em ações sustentáveis.

Effects of management effectiveness, firm life cycle, and financial flexibility on firm's performance

Effects of management effectiveness, firm life cycle, and financial flexibility on firm's performance

When does board share ownership matter Evidence from across firm life cycle in sub-Saharan Africa

When does board share ownership matter Evidence from across firm life cycle in sub-Saharan Africa

Environmental, social and governance e o ciclo de vida das firmas: evidências no mercado brasileiro

ABSTRACT The study analyzed the association between environmental, social and governance (ESG) and the life cycle stages of Brazilian publicly-traded companies listed on the B3 S.A. - Brasil, Bolsa, Balcão (B3) from 2010 to 2020. It explores a theoretical gap regarding the relationship between the life cycle stages of companies and ESG initiatives in Brazil, an emerging country. The findings are relevant for understanding how the life cycle stages act as signals of the level of ESG actions of companies and how the market perceives these actions and their ability to create value. The research provides evidence that the fundamentals of the firm life cycle theory function as indicators for several organizational perspectives, including ESG practices. The sample consisted of 109 companies whose data were collected from Thomson Reuters® and analyzed using multiple regression. The model proposed by Dickinson (2011) was used to analyze the life cycle stages. It should be highlighted that the data were also analyzed using the fixed effect as an estimation of the econometric model, but there was a loss of statistical significance in the relationship found, possibly due to the sample selection performed in the unbalanced panel. Based on the sample analyzed and the econometric models used, the results indicate that companies in the birth and turbulence stages have lower levels of ESG practices, particularly in the environmental and social pillars, compared to companies in the maturity stage. The findings also show that ESG initiatives in the Brazilian capital market are associated with measures of companies’ profitability, liquidity, indebtedness, market value, and number of analysts. The research contributes to the analysis of the relationship between the adoption of ESG practices and the life cycle stages of companies in an emerging market, with implications for stakeholders regarding the targeting of resources to sustainable actions.

The Impact of Executive Shareholding on Corporate Governance Efficiency—from Firm Life Cycle Perspective

The Impact of Executive Shareholding on Corporate Governance Efficiency—from Firm Life Cycle Perspective

The relationship between firm financial distress, firm life cycle and firm cash holdings of non-financial listed Vietnamese companies

The relationship between firm financial distress, firm life cycle and firm cash holdings of non-financial listed Vietnamese companies

Does financial performance follow firm life cycle? Evidence from Indonesian firms

This study aims to determine whether the asset turnover ratio, current ratio, debt ratio and return on net worth influences profitability at each firm life cycle stages in manufacturing companies on the Indonesia Stock Exchange. The study only focuses on introduction stage and growth stage. The classification at each stage of the firm life stages uses the sales growth variable to categorize it. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange for the 2016-2020 period. The sampling technique in this study used purposive sampling technique and obtained a sample of 36 companies. The data analysis method used is panel data multiple regression analysis. The results indicate that at introduction stage only debt ratio and return on net worth that found has a significance influences on profitability. At growth stage almost all independent variable has a significance influences on profitability, except current ratio variable.

Effect of Corporate Social Responsibility and Firm Life Cycle on Banking Performace in Indonesia

The study aims to analyze the effect of (1) of Corporate Social Responsibility on banking performance, (2) Firm life cycle on banking performance and (3) Corporate Social Responsibility on every firm life cycle with banking performance proxies listed on the Indonesia Stock Exchange in 2018-2020. The study used two control variables: firm size and economic condition. The population in this study is all banking companies listed on the Indonesia Stock Exchange. While the samples in the study were determined by the purposive sampling method, the banking company's samples for three consecutive years from 2018-2020, resulting in a samples count of 34 companies with 93 observations for each variable. The analysis method used is multiple linear regression analysis using the IBM SPSS Statistics 26 program.
 The results of this study concluded that (1) Corporate Social Responsibility using GRI standard has no significant effect on banking performance proxies, (2) Firm life cycle with RETE ratio has a significant effect on banking performance proxies, (3) Firm life cycle can not moderate the influence of CSR on the banking performance