Firm Life Research Articles

Firm life cycle and debt maturity structure: evidence from China

AbstractThis study examines the effect of firm life cycle on debt maturity structure (DMS) in China. We reveal that DMS is relatively low in the introduction and recession periods, while long‐term debt ratio of growth companies is high. Companies in booming industries need funds but have difficulty obtaining long‐term loans, whereas companies in recession can use more long‐term loans. The Chow test shows that DMS changed markedly before and after the new normal of China’s economy and the implementation of the ‘mass entrepreneurship and innovation campaign’. It is urgent to address sunset industries to improve the efficiency of resource allocation.

Uncertainty, Imperfect Information, and Expectation Formation Over the Firms's Life Cycle

Using a long-panel dataset of Japanese firms that contains firm-level sales forecasts, we provide evidence on firm-level uncertainty and imperfect information over their life cycle. We find that firms make non-negligible and positively correlated forecast errors. However, they make more precise forecasts and less correlated forecast errors when they become more experienced. We then build a model of heterogeneous firms with endogenous entry and exit where firms gradually learn about their demand by using a noisy signal. In our model, informational imperfections lead firms to enter the market without being fully informed. Moreover, young firms tend to wait long before entering or exiting the market faced with high uncertainty about their demand. The former learning effect, combined with the latter real-options effect, adversely affect firms’ entry decisions and thus resource allocation. Our quantitative exercise substantiates the importance of accumulation of experience for firms’ post-entry dynamics and aggregate productivity.

Exploring the Nexus between Financial Flexibility, Managerial Efficiency, Ownership, and Performance: An Interactive Model for Growth, Mature, and Stagnant Companies in Pakistan

After financial crises, regulatory control makes it difficult for firms in acquiring cash flows to sustain financial safety. As a result, many listed companies in Pakistan prone to follow the “new pecking order theory” whereby they prefer equity financing rather than debt financing. Yet, the dynamics between financial constraints, efficiency, and performance are not clear. And whether the firm life cycle affects these dynamics, is still an open question. Hence, the purpose of this paper is to examine whether the managerial efficiency of Pakistani firms with financial flexibility is demonstrated differently across firm life cycles. To measure flexibility, we created a modified Financial Flexibility Index (FFI) based on Chang & Ma (2019) methodology. The study employed a sample of 30 firms listed on Pakistan stock exchange and gathered data from the annual reports during the period 2009 to 2018. The fixed effect regression model is applied by using balanced panel data. The result revealed that financial flexibility has a significant and positive effect on firm performance, however firm performance in the stagnant stage of lifecycle does not have a significant effect with financial flexibility, while in the mature and growth stage there is a significant impact of FFI on firm performance. More importantly, managerial efficiency (ME) turns out to be the key factor in affecting firm performance in all the stages of the lifecycle. It seems to have a negative effect. However, a negative complementarity was observed between FFI and ME, meaning higher FFI would decrease the negative impact of ME in performance. This complementarity turns positive in mature companies, as compared to the other two groups. Tobin's q, Dividends and Ownership, and Tangibility have a significant and positive effect overall, However, Tangibility seems to affect negatively growth and stagnant companies. Variables like control power, block holder ownership, Size, and Age doesn’t seem to affect performance. This study has implications for corporate managers, if they want to reduce the chances of financial distress and enhance the firm performance, then they obtain and maintain financial flexibility by keeping the leverage at a low level.

Ownership concentration, firm life cycle, and leverage: Evidence from Italian family firms

We examine the impact of ownership concentration, firm life cycle, and family ownership on leverage using a sample of listed Italian firms. The study findings reveal that family businesses in Italy...

Firm Life Stage and Earnings Announcement Reactions

Prior literature documents that corporate decisions are influenced by firm life stage, yet whether firm life stage affects investors’ reactions is not well understood. Using a cash flow-based life stage classification, this study finds that investors’ reactions to earnings announcements differ by firm life stage. Introduction and decline stage companies exhibit three-day cumulative abnormal returns (CARs) around earnings announcements that are at least 112 bps lower than firms in growth, maturity, and shake-out stages. Specifically, introduction and decline stage stocks exhibit less positive reactions to positive earnings surprises and more negative reactions to negative earnings surprises relative to companies in other life stages. Lottery stocks’ excess returns around earnings announcements (Liu, Wang, Yu, and Zhao 2020) also vary based on firm life stage. Our findings suggest that noise/retail traders’ overoptimistic expectations for introduction and decline stage stocks are met with disappointment when value-relevant earnings news is released. This study demonstrates that firm life stage has real implications for stock price reactions to earnings announcements in financial markets.

FIRM LIFE CYCLE CONCEPT IN ACCOUNTING: A LITERATURE REVIEW

Firma yaşam döngüsü teorisi muhasebe alanında uzun yıllardır çalışılan ve işletmelerin daha homojen bir şekilde gruplandırılmasını sağlayan önemli bir analiz tekniğidir. Firma yaşam döngüsü, pazarlama ve mikroekonomi teorilerinden türetilen ve firmaların tıpkı canlı bir organizma gibi çeşitli yaşam döngüleri olduğunu ileri süren ve deterministik olmayan bir kavramdır. İşletmelerin yaşam döngüsü evresinin doğru ve güvenilir bir şekilde tespit edilmesi, alınacak finansal ve finansal olmayan kararlar üzerinde son derece etkilidir. Bu çalışmanın temel amacı, firma yaşam döngüsü teorisinin gelişim sürecini ele alarak literatürdeki çalışmaları konularına göre incelemektir. Bu kapsamda, öncelikle temel firma yaşam döngüsü modelleri ve tanımlayıcı çalışmalara yer verilmiştir. Firma yaşam döngüsünün aracı rol üstlendiği değer ilişkisi, kazanç yönetimi, firma performansı, sermaye yapısı, temettü politikaları, risk ve diğer alanlardaki araştırmalar çalışmanın diğer konuları arasındadır. Firma yaşam döngüsünün birçok çalışmada önemli bir analiz tekniği olarak kullanılmasına rağmen Türkiye’de bu konuyla ilgili yeterince araştırmanın yapılmaması çalışmanın önemli bulguları arasında yer almaktadır.

Narrative disclosures, firm life cycle, and audit fees

This study examines the relationship between narrative disclosure properties in terms of readability, optimism, and ambiguity of annual reports and audit fees, and how the relationship changes across firms' various life‐cycle stages. Using 54,883 observations for the years from 2000 to 2016, we find that these textual disclosure properties have positive audit pricing consequences. We suggest that narrative disclosure properties play an important role in estimating audit risk, and thus in audit fees. We further posit that the audit fee consequences of these disclosure characteristics vary across different phases of a client firm's corporate life cycle. Though we observe that with a decrease in readability and an increase in optimism and ambiguity of disclosure language that audit fees increase in the introduction phase, a firm's entry to the growth phase moderates the influence of these narrative disclosure features on audit fees. However, the impact of these lexical features on audit fees increases as client firms switch (1) from the growth phase to the maturity phase and (2) from the maturity phase to the decline phase. Based on these findings, we argue that, when examining the audit fee implication for management's disclosure strategies, researchers should treat client firms as dynamic evolving entities.

PENGARUH CORPORATE SOCIAL RESPONSBILITY TERHADAP FINANCIAL DISTRESS DIMODERASI OLEH SIKLUS HIDUP PERUSAHAAN PADA TAHAP MATURE

This research investigated to prove that corporate social responsibility has a negative effect on financial distress, and the firm life cycle at the mature stage strengthen effect of corporate social responsbility on financial distress. The populations of this study were all manufacturing companies listed on the Indonesia Stock Exchange during the years 2014-2017. Methods of data collection used purposive sampling techniques. There were 49 companies with 170 observations that fulfilled the criteria to be the study sample. This study uses a quantitative approach. Data were analyzed using logistic regression and moderated regression analysis (MRA) with the help of SPSS software. The result showed that corporate social responsibility has a negative effect on financial distress, the firm life cycle at the mature stage strengthens the effect of corporate social responsibility on financial distress. Keywords: Corporate social responsibility, Financial distress, Firm life cycle at the mature stage

Do idiosyncratic risk, market risk, and total risk matter during different firm life cycle stages?

This study examines whether firm life cycle stages affects idiosyncratic risk, market risk and total risk using data of Chinese listed non-financial firms from 2007 to 2016, and further explores the relationship between idiosyncratic risk and cash flow volatility by using an interaction term. To check propensity, we further divided our main sample into SOEs (State-owned Enterprises) and non-SOEs. Findings imply that all three risks are significantly higher during introduction, growth and decline stages because their competitive advantages, resource base, and capabilities are limited. Results showing risks are lower during mature stage. Further, we examine cash flow volatility and found that, respective of firm life cycle stages, it varies in affecting these types of risks. By conducting sensitivity analysis, our results are robust to alternative specifications. This study may helpful for managers and investors while managing different investment portfolios.

A review of the literature on dual-class firms

PurposeThe purpose of this paper is to critically review the relevant literature from the perspective of dual-class firms and to provide suggestions for future research on dual-class firms, and on methodological issues that should be addressed in such research.Design/methodology/approachThe research design consists of three parts: an introduction to dual-class firms (motivations for; firm life cycle effects) in Part 1; concerns with firms with such share class structures (valuation; governance; accounting and corporate policy issues) in Part 2; and some solutions or ways to accommodate the trade-offs involved with such share class structures (retention arguments; index/exchange exclusions; contractual provisions; external monitoring) in Part 3. Throughout the paper, the authors provide some critiques of existing studies, particularly from a methodological perspective, the authors’ opinion on the state of the literature and suggestions for future areas of research.FindingsWhile motivations for the use of dual-class voting structures include flexibility so that the idiosyncratic vision of their entrepreneurs/founders can be pursued in a less encumbered fashion, greater innovation and long-term managerial orientation, there are many possible costs (e.g. underinvestment and managerial entrenchment) to this ownership structure. Nevertheless, the authors believe that such firms should have provisions in place that facilitate a reversion to a single-class structure longer term when such firms have become more mature, less dependent on the idiosyncratic vision of the entrepreneurs/founders at IPO and have attracted more managerial talent.Originality/valueThe literature arrives at no consensus on the benefits/drawbacks of this type of share ownership structure which means that many topics of research require further academic examination. The authors provide suggested directions for such future enquiries.

Firm Life Cycle based on Cash Flow Patterns and the Financial Characteristics for Unlisted SMEs

Firm Life Cycle based on Cash Flow Patterns and the Financial Characteristics for Unlisted SMEs

The value relevance of R&D and free cash flow in an efficient investment setup

Purpose The purpose of this paper is to investigate the value relevance of Research and development (R&D) and free cash flow (FCF) in an efficient investment setup. Most importantly, this paper examines whether the value relevance of R&D and FCF is associated with life cycle stages. Furthermore, this paper reports whether the market response to R&D and FCF is different in competitive market as compared to the concentrated market. Design/methodology/approach The analysis is based on the Ohlson (1995) model for the determination of value relevance of earnings and book value. Capitalized R&D and FCF data comprising of the Chinese A-listed firms from the year 2008 to 2016 are selected for this study. Following Anthony and Ramesh (1992), the authors divided the firm life cycle into different stages. HHI index is used to measure the product market competition. Findings The main result shows that R&D and FCF are value relevant in Chinese A-listed firms. The impact of R&D and FCF on the value relevance of earnings and book value is also positive and significant. The findings of the effect of R&D and FCF on the value relevance of accounting information signify that the information content (R2=0.46) of the mature stage is higher than that of the growth and stagnant stage. The explanatory power measured by R2 value for competitive industries (0.47) is much higher than the concentrated industries (0.33). Research limitations/implications Despite taking into account all the possible available variables, there are few limitations of the study. This study only studies the effect of EPS, BPS, R&D and FCF on the value relevance of accounting information. Other determinant such as size, growth, leverage and firm age is ignored. Since the R&D expenditure is discretionary, therefore the findings cannot be generalized to all the sectors. A sector wise comparative study can be done in future, to understand the differences in the information contents of R&D and FCF. Also, the tax effect of R&D is ignored in this study. For future call, the value relevance of tax effect on R&D can be explored. Practical implications The investors can now determine the present value of all the future cash flows of investing activities. The results of the study are significant for the Chinese investors who should incorporate the R&D and FCF along with investment efficiency. The investors should keep in mind the life cycle stage while investing in a certain stock. The competitive markets have more information content than the concentrated markets. The corporate managers can benefit from this study while issuing new shares. The market responds positively to the stock having investment efficient R&D and FCF investment. For the policy implication perspective, the security market regulator should devise the effective pro-effective product market regulations. Originality/value The contribution of this study is manifold. First, according to the authors’ knowledge, this is the first study that incorporates investment efficiency with R&D and FCF and explores its effect on the value relevance of accounting information. Second, the impact of R&D on the value relevance is studied by numerous researchers (Lev and Sougiannis, 1996; Han and Manry, 2004). Similarly, FCF-agency cost effect has also been investigated by (Rahman and Mohd-Saleh, 2008; Chen et al., 2012) but the value relevance of R&D and FCF during different life cycle stages still needs to be answered. Finally, this study also tries to answers the question if the market response to R&D and FCF is different in a competitive market as compared to the concentrated market.

IPTEKS PENGHITUNGAN SIKLUS HIDUP PERUSAHAAN (STUDI KASUS PADA PERUSAHAAN TERBUKA DI BURSA EFEK INDONESIA)

Rapid growth of economics makes many firms continue to develop their business. Along with the rapid growth of business the high competition rising between firms in term to snatch the market or consumers. The higher of competition gives an impact to firms life cycle which makes many firms keep develop their business strategy to attract the investors and consumers. Under assumption that the median is 0.76 based on sample, the result of calculation of the retained earnings to total equity (RETE) in period of 2016 shows that life cycle of each firms are varies. The result shows that firms under median are not at mature stage while firms above median are categorized as mature firms.

Monitoring Spatial Changes in Manufacturing Firms in Seoul Metropolitan Area Using Firm Life Cycle and Locational Factors

This paper diagnoses the development of the manufacturing industry in the Seoul Metropolitan Area (SMA) using portfolio and regression analyses. Following the life-cycle perspective, four types of spatial changes of firms have been identified, namely firm formation, inflow, outflow, and dissolution, which are applied to analyze the manufacturing development in SMA. For portfolio analysis, we propose the Net Formation Index and Net Inflow Index to measure the spatial changes of firms at the city level. The two indices facilitate horizontal comparison among cities in SMA in terms of firm growth from new opening and relocation. Using spatial regression analysis, we identify significant location factors that contribute to firm change patterns. Our tests show that a high level of industrial specialization (measured by location quotient) has a dual effect. On the one hand, high level specialization attracts new or inflow firms, particularly in the light and high-tech manufacturing industries. On the other hand, it leads to an increased number of closed or outflow firms, plausibly due to increased competition among local firms. The proposed methods can be applied to diagnose industrial development in clusters of inter-connected cities and design policy tools to boost the local industry.

Stages of firm life cycle, transition, and dividend policy

This paper provides evidence of the ability of a cash flow-based life cycle proxy, developed by Dickinson (2011), to explain the propensity of firms to pay dividends, which can vastly improve our understanding of the life cycle effect. Our results show that the propensity to pay manifests a nonlinear relation with the five stages of a firm's life cycle, and that the commonly used life cycle proxy RE/TE cannot reconcile important features of the data. The cash flow-based proxy also captures theoretically consistent changes in payout policy when a firm transitions from one life cycle stage to another.

현금흐름패턴방식을 이용한 기업수명주기에 따른 보유 현금의 가치

현금흐름패턴방식을 이용한 기업수명주기는 영업활동, 투자활동 및 재무활동으로 인한 현금, 이 세 가지 현금흐름의 구분이 기업의 수익성, 성장, 위험성의 차이를 포착하고 있으므로, 세 가지 유형의 현금 흐름의 조합을 기존의 수명주기 이론과 연결하고자 한 것이다. 본 연구는 현금흐름 패턴 방식의 수명주기 단계 구분을 이용하여 각 단계별로 기업의 보유 현금의 한계가치가 시장에서 다르게 평가되는지 검증하였다.BR본 연구는 2000년부터 2017년까지의 상장기업에 속해 있는 16,914개의 기업-연도 표본을 이용하여 회귀분석을 하였다. 분석결과, 현금흐름패턴 방식을 이용하여 분류한 수명주기 단계별로 보유현금의 한계가치는 다르게 나타났다. 구체적으로, 성장기와 성숙기에 속한 기업의 보유현금의 한계가치는 통계적으로 유의한 차이가 없었으나, 도입기와 쇠퇴기는 성장기 및 성숙기에 비하여 보유현금의 시장가치가 낮은 것으로 나타났다. 그리고 쇠퇴기에 비해 성장기에 속한 기업의 현금은 그 한계가치가 높게 평가되는 것으로 나타났다. 선행연구에서 주로 재무적, 비재무적 지표를 포트폴리오로 구성하여 임의적인 수명주기 분류방법을 거치는 방법을 이용하였으나, 본 연구에서는 현금흐름 패턴 방식의 수명주기 단계 구분을 이용하였으며 각 수명주기에 속한 기업의 보유 현금의 시장가치가 다르게 평가되는 것을 실증하였다는 것에 의미가 있다.

Does firm life cycle impact corporate risk taking and performance?

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.

The Effect of Firm Life Cycle on the Relationship between R&D Expenditures and Future Performance, Earnings Uncertainty, and Sustainable Growth

R&D investment can reduce costs through efficient production technology, which has a positive (+) impact on future performance. On the other hand, R&D investment has uncertainty due to characteristics such as time lag, high cost and non-appropriability. We examine whether the effects of R&D expenditures on future performance and earnings uncertainty are different according to firm life cycle, which reflects the differences in the environment, circumstances, and strategy of the firm. Investors assess sustainable growth potential of the enterprise in the capital market, reflecting the future performance and the uncertainty of the firm. This implies that R&D investment can affect the capital market through investors’ future expectations for sustainable growth of the company. We also examine the differential effects of R&D expenditures on market response by the firm life cycle. The test results show that firm life cycle differentially affects the relation between R&D expenditures and future performance and uncertainty. Further, the market response varies over the firm life cycle. Our results provide suggestions that R&D investments should be made properly considering the environment and circumstances of the firm. The finding that R&D expenditures differently affect future performance, uncertainty, and sustainable growth potential according to the firm life cycle is expected to help managers make decisions about R&D investment.

A Typology of Family Firms: An Investigation of Entrepreneurial Orientation and Performance

Drawing on family firm heterogeneity research, we develop a typology of family firms using differences in family influence and firm life cycle. We offer hypotheses regarding the relationships between the different firm types and two important outcomes: Entrepreneurial orientation (EO) and performance. Applying latent profile analysis to a sample of 684 Spanish and Portuguese family firms using variables related to family influence (i.e., ownership, family CEO) and firm life cycle (i.e., generational management, size, and presence of board of directors), we find four family firm types, which differentially affect EO and performance. Implications of our findings for EO, family firm performance, and the development of family firm typologies are discussed.

Firm Life Cycle, Expectation Errors and Future Stock Returns

I study the return predictability of firm life cycle, originally documented by Dickinson (2011). I show that a hedge portfolio strategy going long on mature firms and short on introduction firms generates a significant hedge portfolio return of 1.4% per month in return-weighted portfolios and 0.75% in value-weighted portfolios. The returns to firm life cycle are related to investors’ and analysts’ expectation errors, are driven by market-wide investor sentiment, and are more pronounced among stocks with low institutional ownership and high idiosyncratic volatility. Quantile regressions show that introduction firms have considerably greater uncertainty and skewness in future earnings growth outcomes than mature firms, such that analysts are better able to justify optimistically biased forecasts for introduction firms compared to mature firms.