Firm Life Research Articles

The Effects of Firm Life Cycle and Capital Intensity on the Relation between over Production and Future Profitability

The Effects of Firm Life Cycle and Capital Intensity on the Relation between over Production and Future Profitability

Firm Life Cycle and Cost of Debt

This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that mature firms pay lower lending spreads. This reduction is incremental to the variation explained by financial controls that may have previously been thought to sufficiently account for variation in the corporate life cycle. In our multivariate analysis, continuous measures of maturity yield point elasticities with effects as large as 1.50 bps while categorical life cycle measures indicate that firms in the introduction and decline phases pay lending spreads that are greater than firms in the mature phase (6 percent and 12 percent, respectively). We explore omitted variables bias and instrumental variable estimation in robustness testing and find these patterns persist. Our findings are consistent with theoretical predictions regarding the relationship between the corporate life cycle and various lending risks.

Firm Life Cycle and Financial Performance: Evidence from Nigeria

Purpose: There are limited scholarly works in Nigeria which examinethe influence of firm life cycle on financial performance. This studyhas filled this gap by examining the effects of firm life cycle onfinancial performance of listed firms in Nigeria.Design/Methodology/Approach: Correlational research design wasused and data were extracted 91 listed firms over a ten-year period(2010-2019) and analyzed using descriptive statistics (mean, standarddeviation, minimum mean and maximum mean) and inferentialstatistics (correlation coefficients and multiple regression analysis).Diagnostic checks such as normality, multicollinearity,heteroskedasticity, serial (auto) correlation and panel effects tests werecarried out and the results were used to decide the appropriate methodsof regression analysis.Findings: We find maturity stage to have positive and significanteffect on financial performance. However, we fail to find anysignificant effect at introductory, growth and shake-out stage.Implications/Originality/Value: The study, therefore, concludes thatthe maturity phase is the most critical stage and recommends thatmanagers should pay greater attention to their businesses, particularlyduring the period of maturity to avoid shakeout or decline.

Earnings management, policy uncertainty and firm life cycle stages: evidence from publicly traded companies in the USA and Brazil

PurposeThis paper aims to investigate the combined effect of economic policy uncertainty (EPU) and the firm life cycle on the degree of accrual-based earnings management of publicly traded companies in the USA and Brazilian stock markets.Design/methodology/approachThe EPU index used was the one developed by Baker et al. (2016), the Kothari et al. (2005) model was used in the main analysis to obtain the discretionary accruals and the classification of firms into different life cycles was based on the Dickinson (2011) approach, which relies on the sign of operating, investment and financing cash flows. The methodology includes correlation matrix and panel regression with fixed effects.FindingsThe overall results for the USA sample suggest that economic policy uncertainty does have a heterogeneous influence on the firms’ accrual earnings management conditional on their life cycle where firms in the introduction, growth and decline stages decrease this practice when policy uncertainty increases. For the Brazilian case, in general, there is no combined effect between these variables. These contrasting findings can be associated with either the different underlying characteristics of both stock markets or the reduced sample size for the emerging market analyzed.Originality/valueThis research contributes to the earnings management literature examining how policy uncertainty is related to accruals manipulation under different life cycle stages and institutional environments. It is also one of the first studies to explore this conditioning effect.

The dividend signaling hypothesis and the corporate life cycle

PurposeThis paper aims to examine the relationship between the dividend signaling hypothesis and a firm's life cycle.Design/methodology/approachThe authors use Dickinson's (2011) methodology to develop a proxy for the firm's stages in its life cycle and to examine the relationship between dividends and future earnings following a nonlinear setting.FindingsUsing a sample of US firms during the 2000–2014 period, the authors find that the signaling hypothesis can be dependent on firm-specific characteristics, such as life cycle stages. The authors report that the relationship between dividend changes and subsequent earnings changes is different for different life stages. They also find that changes in the amount of the dividend provide some information about future earnings, especially during the early (introductory and growth) stages. These results are consistent with the use of earnings or return on assets as the dependent variables in models of earnings expectations.Originality/valueThe authors believe that this is the first time that the dividend signaling hypothesis has been linked to the life cycle of the firm.

기업의 수명주기와 사내유보가 기업가치에 미치는 영향

기업의 수명주기와 사내유보가 기업가치에 미치는 영향

Peer‐based comparison and firms' discretionary cost decisions

AbstractThis study investigates whether firms engage in peer‐based benchmarking in their decision‐making regarding selling, general and administrative expenses (SG&A) for a large sample of U.S. listed firms. Peer‐based comparison relates to comparing own performance against the performance of a meaningful reference group of other firms. SG&A are to a large extent discretionary, but optimal levels of (relative) SG&A are hard to assess. Based on the behavioural theory of the firm and institutional theory, we argue that peer‐based comparison is likely to be an important input to managers' SG&A decision processes. Results show that peer‐based comparison significantly drives changes in firms' reported SG&A. In addition, the effect of peer‐based comparison is found to depend on the firm's life cycle stage. Findings further indicate that peer‐based comparison has a significantly stronger effect in reference groups characterised by high(er) SG&A similarity. Results are robust to using several industry classification systems, as well as, multiple approaches to identify firm life cycles.

Managing the paradox: Individual ambidexterity, paradoxical leadership and multitasking in entrepreneurs across firm life cycle stages

Ambidexterity requires both exploration and exploitation. However, our understanding of the individual ambidexterity concept, its association with multitasking behaviours and paradoxical leadership across the firm life cycle of entrepreneurs remains limited. In this article, we examine 4355 behavioural activities related to exploration and exploitation from 12 entrepreneurs. We first demonstrate that entrepreneurs display self-sustaining activity cycles; that is, exploration tended to be followed by exploration and exploitation tended to be followed by exploitation. Second, when multitasking behaviours were high, entrepreneurs had lower levels of ambidextrous switching. Third, we found an association between entrepreneurial ambidexterity and paradoxical leadership; this was moderated by the firm life cycle stage. As such, this article contributes to a better understanding of individual ambidexterity, leadership and multitasking in entrepreneurs.

기업수명주기가 비용의 자의적 분류에 미치는 영향：쇠퇴기를 중심으로

기업수명주기가 비용의 자의적 분류에 미치는 영향：쇠퇴기를 중심으로

A Dynamic Resourced Based View on Firms Life Cycle Stages and Capital Structure Theories: A Comparative Analysis of Developed and Emerging Asian Markets

Dynamic resource-based view is the major inspiration for this study, which signifies the changes in paths and patterns of the evolution in organizational capabilities during its LCS. Using the Dickinson's (2011) firm's LCS, the study determined diverse behavior of traditionally established explanatory variables across stages. For the purpose of analysis GMM model has been used, the study conducted a comparative analysis of developed and emerging markets in Asia. The results showed higher COE capital during introduction and decline stages in emerging markets implying trade-off theory and dynamic resource-based view. Study denies association between COE capital and market-to-book value in developed markets in line with market timing theory Its concluded that COE's explanatory factors evolve across markets and firm's LCS the explanatory power of the general model is much higher when the study included LCS in its main model justifying resource-based view.

기업의 사회적 성과와 경영자보상에 대한 기업수명주기의 효과

기업의 사회적 성과와 경영자보상에 대한 기업수명주기의 효과

Does concentrated founder ownership affect board independence? Role of corporate life cycle and ownership identity

We examine the impact of increasing levels of concentrated founder ownership on board independence and extend the knowledge by exploring whether the impact of concentrated founder ownership on board independence varies with firm's life cycle stages, ownership identity, level of external monitoring and type of firms. Using the Indian sample of 13,636 firm-year observations for the period 2001–2015, we find that controlling shareholders influence the board structure and exhibit a non-monotonic relationship. The relationship moves from entrenchment to alignment and again to entrenchment as their shareholding increases. We find that Indian controlling shareholders influence board independence more than their foreign counterparts. We show that business group firms are associated with greater board independence than standalone firms. We also show that controlling shareholders influence board independence of the firm in the growth stage. Our findings support the notion that the effect of concentrated ownership changes with its level of ownership, identity, firm life cycle stages, level of external monitoring and type of firms.

Pengaruh siklus hidup perusahaan terhadap penghindaran pajak dengan manajemen laba sebagai variabel intervening

Purpose: This study aims to empirically prove the influence of the company’s life cycle on tax avoidance with earnings management as an intervening variable. Research methodology: Tax avoidance used ETR proxies and firm life cycle was proxied using an average sales growth of 5 years. The firm life cycle used the Dummy variable, valued at 1 classified growth stage and valued at 0 mature stages. Study sample of non-financial companies listed on the Indonesia Stock Exchange in 2010-2018. The sample selection method is Purposive Sampling method with 668 observations. Data analysis method with multiple regression analysis. Results: The firm life cycle has an influence on tax avoidance, indicating companies that are in a mature life cycle will avoid lower taxes than companies that are in the growth stage. Regression results indicate that earnings management variable is a partial intervening/mediation variable (Partial Mediation), which indicates that the firm life cycle influences tax avoidance through earnings management. Limitations: The limitation of this study is that the firm life cycle variables studied were only two cycles. In addition, the limitation of this study is that it only uses proxies for average sales growth to classify the life cycles of sample companies. Contribution: To add references related to tax avoidance, firm’s life cycle and earnings management. Suggestions for further research are adding other cycles so that they can more broadly see the effect of the firm’s life cycle on tax avoidance. And use other proxies that are more representative in classifying the firm’s life cycle, such as using based on cash flow patterns. Keywords: Tax avoidance, Firm life cycle, Earnings management

Diversified acquisitions in family firms: Restricted vs. extended family priorities

Through diversified acquisitions, family firms are able to grow their business in previously untapped markets. In the long term, diversification can enhance extended socioemotional wealth (SEW) priorities, as it reduces business risk and supports the goal of passing businesses on to future generations. However, diversified acquisitions may threaten restricted SEW priorities due to short-term financial and social constraints. Prior studies, therefore, show conflicting results regarding the likelihood of diversified acquisitions in family firms. With the aim of reconciling contradictory findings in the literature, we analyse how distinct configurations of family firms based on family ownership, family management, and family firm life cycle stage affect the likelihood of diversified acquisitions. Using on a hand-collected dataset including 404 strategic acquisitions made by 211 German family firms between 2010 and 2016, our study reveals that high family ownership is linked to a long-term perspective on and respectively extended SEW preferences in acquisition decisions, leading to a higher probability of a diversified acquisition. This effect is weakened in cases of high family management and particularly strong in cases of first-generation family firms. In later generations, family-dominated top management teams decrease the probability of diversified acquisitions, indicating that in these family configurations, a preference for pursuing short-term respectively restricted SEW goals is dominant.

Economic crisis impact on low carbon transition in economy-ecosystem

To better understand the economic crisis impact on industry economy in low carbon transition, the simplified macroeconomic system combined with a distributed industry-energy ecosystem, namely the economy-ecosystem, was established based on an agent-based modeling approach. A set of behavioral rules for each agent involved was formalized to study the competition between high and low carbon energy under the scheme of ecological life of industrial firms, and periodical economy crisis was emerged by adjusting asymmetric adjustment speed ratio of hiring to firing and default threshold that controls the ratio between total debt and total circulating currency. The impact of the economic crisis on the ecosystem in a distributed energy system and the interaction between the economy and ecosystem in low carbon transition under different conditions of the ecosystem were investigated. Simulation results show that high carbon energy is more resistant to economic crisis than low carbon energy. Moreover, low-carbon transition with economic recession state can be reached in economy-ecosystem. Various policy implications are also given to policymakers with different technical levels and economic status.

Firm life cycle and the disclosure of estimates and judgments in goodwill impairment tests: Evidence from Australia

The goodwill impairment disclosure literature examines the association between firm-and country-level factors and the disclosure of estimates and judgments used in the goodwill impairment test under International Accounting Standard 36. Although the accounting literature provides competing predictions about the relation between firm life cycle and these disclosures, prior studies did not explore the role of firm life cycle in these disclosures. This paper fills in this gap in the literature, and documents that, in Australia, these disclosures vary by life cycle stages and that firm size moderates this association. We, however, find that the differences are more pronounced for some disclosure items than for others.

The impact of life cycle stage on firm acquisitions

PurposeThe purpose of the authors’ research study is to identify the impact of life cycle stage on firm acquisitions.Design/methodology/approachThe authors use a series of empirical databases to identify characteristics of acquirers and their targets. The authors then use logistic regressions and joint tests to identify significant differences between declining and non-declining acquirers.FindingsThe authors find that declining acquirers are more likely to pursue diversifying acquisitions and to pay for the acquisition with stock considerations. Acquisitions by declining acquirers result in positive abnormal returns initially, but post-acquisition returns are negative.Research limitations/implicationsThe authors’ primary limitation is their data, which only includes public acquirers and targets, and runs from January 1, 1988 to December 31, 2010.Practical implicationsThe authors’ research suggests that regulators, stakeholders and prospective stakeholders should consider the life cycle stage of an acquiring firm in setting expectations about motivations for and likely performance subsequent to the acquisition.Originality/valueThe authors’ paper is the first to consider the effect of firm life cycle stage on the motivation and subsequent success of an acquisition. Given the tremendous impact to shareholders of such significant transactions, understanding the acquisition process more completely is important to capital markets participants.

Firm Pay Dynamics

We study the nature of firm pay dynamics using matched employer-employee and firm financials data from Sweden. To this end, we propose and estimate a statistical model that extends the seminal framework by Abowd, Kramarz, and Margolis (1999b) to account for idiosyncratically time-varying firm pay policies. We validate the model by showing that firm-year pay estimates are systematically related to measures of firm performance. We then apply the model to assess the role of firm pay dynamics in accounting for the rise in earnings inequality in Sweden, to characterize within-firm pay differences over time, to measure firm pay mobility, and to quantify ex-ante versus ex-post heterogeneity in firm pay differences over the firm life cycle.

기업수명주기와 미래이익에 대한 주가 정보성

기업수명주기와 미래이익에 대한 주가 정보성

The Interplay between Working Capital Management and a Firm’s Financial Performance across the Corporate Life Cycle

The purpose of this study is to examine the impact of working capital management (WCM) and working capital strategy (WCS) on firm’s financial performance across different stages of the corporate life cycle (CLC). We use Pakistani non-financial listed firms nested in 12 diverse industries over a period of 2005–2014 as the research sample and employ the hierarchical linear mixed (HLM) estimator, which can process multilevel data where observations are not completely independent. The empirical findings reveal that, overall, WCM is negatively associated with firm performance. However, this association is not static across different stages of a firm’s life cycle. For example, a negative association is more pronounced at the introduction stage followed by growth and decline stages, whereas WCM does not significantly impact the performance of mature firms. Likewise, WCS also causes varying effects on the financial performance across the CLC. A conservative strategy at the introduction, growth, and decline stages negatively affects firm performance, suggesting that these firms should adopt an aggressive strategy. Nevertheless, management of sample firms did not account for the respective life cycle stage while formulating a WCM strategy, which can seriously compromise their financial sustainability. These findings suggest that firms require customized WCM policies and WCS to attain sustainable financial performance at each stage of firm life cycle. Thus, managers should not overlook the significant role of CLC stages in their financial planning to ensure the sustainable functioning of the enterprise.