Firm Life Research Articles

Corporate Life Cycle Research in Accounting and Finance: A Survey, and Directions for Future Research

Corporate life cycle has received considerable interest in the accounting, finance and corporate governance literature. We synthesize this literature to inform readers about the valuable insights gained from these studies, and to outline knowledge gaps and future research directions. Although few in numbers, our review of the determinants of corporate life cycle suggests that managerial efficiencies, flexibility, and the resource-base of the firm drive transition through the corporate life cycle. Bulk of the reviewed papers examine the implications of firm life cycle studies which we categorize into three groups: (i) financial reporting and management accounting implications, (ii) financial policy implications, and (iii) corporate governance implications. Our review suggests that the corporate life cycle has considerable effects on firms' financial reporting and corporate disclosures; corporate investment, financing and dividends decisions; and corporate governance and socially responsible behavior. Despite a growing body of literature on corporate life cycle, we identify critical short-comings of past studies, and suggestions for future studies.

Innovation Strategy of Private Firms

We compare innovation strategies of public and private firms based on a large sample over the period 1997–2008. We find that public firms’ patents rely more on existing knowledge, are more exploitative, and are less likely in new technology classes, while private firms’ patents are broader in scope and more exploratory. We investigate whether these strategies are due to differences in firm information environments, CEO risk preferences, firm life cycles, corporate acquisition policies, or investment horizons between these two groups of firms. Our evidence suggests that the shorter investment horizon associated with public equity markets is a key explanatory factor.

Organization capital and firm life cycle

We hypothesize, and examine empirically, two types of association between organization capital and firm life cycle. Are firms with high organization capital more likely to be in a particular stage of their life cycle than firms with low organization capital? Are firms' transitions from one life cycle stage to another over time associated with how much they invest in organization capital? Our findings suggest that firms with high (low) organization capital are more likely to be in the introduction and decline (growth and maturity) stages. Our results also show that firms that invest more in organization capital (i.e., changes in organization capital) are less (more) likely to move to the introduction, shake-out and decline (growth and maturity) stages in the subsequent five years. Our results are robust to alternative specifications of organization capital, life cycle proxies and endogeneity concerns.

Corporate Sustainability Performance Over the Firm Life Cycle: Levels, Determinants, and the Impact on Accounting Performance

In this paper, we empirically investigate the levels and the determinants of corporate sustainability performance (CSP) in different stages of the firm life cycle, as well as the impact of CSP on accounting-based corporate financial performance (CFP). Based on an international sample of 26,902 firm-year observations for the period 2002 to 2014, we use Dickinson’s (2011) firm life cycle measure based on cash flow patterns, Thomson Reuters ESG Research Data (formerly known as ASSET4) as CSP proxy, and return on assets to proxy accounting performance. Drawing on stakeholder theory and the resource based view, we hypothesize and find that CSP differs significantly across the life cycle stages and is lower before and after the mature stage. Free funds available increase CSP during the growth, mature and the shake-out stages. This finding can be attributed to strategic differentiation efforts and also hints towards opportunistic management behavior, i.e., managers might pursue sustainability measures as discretionary investments to keep resources within their spheres of influence. Shareholder concentration reduces CSP in the introduction, growth, mature and shake-out stages. Combined with the results regarding free funds, this finding could be attributed to the limitation of discretionary spending. We find a significantly positive effect of CSP on CFP in the growth, mature and shake-out stages, giving impetus to the CSP business case.

Firm life cycle and advisory directors

This article investigates whether the presence of advisory directors and monitoring directors varies across firm life cycle stages. We follow a parsimonious life cycle proxy based on the predicted behaviour of operating, investing and financing cash flows across the different life cycle stages that result from firm performance and the allocation of resources. Using an Australian sample, this study shows that compared to mature-stage firms, firms in the introduction, shake-out and decline stages have more advisory directors. With respect to the demand for monitoring directors, we find that compared to mature-stage firms, firms in the introduction, shake-out and decline stages have fewer monitoring directors on the board. We contribute to the literature on boards of directors by documenting that firms choose an optimal board structure based on their economic characteristics. JEL Classification: D22, G38, M14

Corporate life cycle methods in emerging markets: evidence from Turkey

Purpose - This paper focuses on the corporate life cycle concept which is one of the vital theories to analyze the firms more homogeneously. The aim of this study is to elaborate main life cycle classification procedures and to compare the most cited methodologies regarding financial indicators according to the expectations from the stages. Methodology - We review the literature and especially examine three firm life cycle methods; Anthony and Ramesh (1992), Yonpae and Chen (2006) and Dickinson (2011). We also develop five hypotheses that are related to firm size, profitability, stock returns, liquidity and risk of the firms for three different stages through using descriptive statistics and t test. Findings - According to the results, while growth firms have higher risk, mature firms are more profitable and get higher stock returns. On the other hand, decline firms are bigger and more liquid than the other stages. The findings also suggest that Anthony and Ramesh (1992) life cycle classification procedure provides a little better insight than the other methods. Conclusion - The study defines the firm life cycle notion which is an expanded version of product life cycle through explaining the most common classification procedures. Investors should concentrate on firms that are at growth stage since they have more potential to receive profitable projects. However, mature firms are at the peak point of the profitability and the risk is relatively low. Firms at the decline stage are one of the biggest candidates of stagnation and the capacity cannot be fully utilized.

Classification shifting: impact of firm life cycle

PurposeThis paper aims to examine whether firms in the decline stage of lifecycle manipulate core or operating income through misclassification of operating expenses as income-decreasing special items.Design/methodology/approachThe sample comprises of firms from an emerging market, India with data from 1996 to 2011. The paper uses the methodology given in McVay’s (2006) work and multiple regressions.FindingsManagers of Indian firms also engage in classification shifting, primary incentive being the desire to avoid reporting of operating losses. Furthermore, the use of classification shifting is dependent upon the stage of lifecycle in which firm is in. Specifically, firms in the decline stage of lifecycle are more likely to use classification shifting to avoid reporting of operating losses.Practical implicationsThe paper sheds light on a critical phase of the firm lifecycle, decline, which increases the possibility of the use of classification shifting, an earnings management technique which is tough to detect. Firms in decline, thus, may be trying to fool the investors who are infusing capital to save the company from going bankrupt; regulators, who are likely to focus less on troubled firms; and auditors, who may not be expecting core income manipulation in such firms.Originality/valueThe paper extends the literature on classification shifting and presents first evidence that such shifting is more likely to take place during the decline phase of firm lifecycle.

Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia

AbstractThis study examines the association between corporate social responsibility (CSR) performance and financial distress and additionally the moderating impact of firm life cycle stages on that association. Based on a sample of 651 publicly listed Australian firm‐years’ data covering the 2007–2013 period, our regression results show that positive CSR activity significantly reduces financial distress of the firm. In addition, the negative association between positive CSR performance and financial distress is more pronounced for firms in mature life cycle stages. Our results are robust to alternative proxy measures of financial distress, CSR performance and life cycle stages.

Dividend policy in Turkey: Survey evidence from Borsa Istanbul firms

This study investigates the views of managers of firms listed on the Borsa Istanbul (BIST) on dividend policy. The survey evidence provides general support for Lintner’s partial adjustment model, signaling theory, catering, firm life cycle, and bird-in-the-hand hypotheses for explaining cash dividends. The results do not support the agency cost theory, substitution model of dividends, tax-related explanations, transaction cost theory, and residual dividend policy. The findings suggest that after implementing major economic and structural reforms and abolishing a mandatory dividend payment requirement, BIST managers follow similar dividend policy factors and patterns of dividend policy as managers in more developed countries.

Subcontracting and the survival of plants in the road construction industry: A panel quantile regression analysis

This paper investigates how subcontracting parts of contracted work shapes entrants’ success and survival. We find that newly developed quantile regression approaches can be adapted to study survival of firms competing for government contracts in road construction. The method is applied on a data set that includes patterns of firm entry, exit and auction related information. We find an apparent increase in the business life of firms who subcontract out part of their projects. In Texas, these subcontracting effects appear to be more pronounced for firms with few or no options outside the industry, and among firms who contract out part of their work to Disadvantaged Business Enterprises.

The Relationship between Firm Life Cycle and Stock Price Crash Risk with an Emphasis on Information Asymmetry and Behavioral Approach

The Relationship between Firm Life Cycle and Stock Price Crash Risk with an Emphasis on Information Asymmetry and Behavioral Approach

Firm life cycle and idiosyncratic volatility

This paper investigates the association between idiosyncratic volatility and firm life cycle stages. Since firm performance and availability of information vary across life cycle stages, and such variation affects uncertainty about future cash flows and stock returns, we argue that idiosyncratic volatility also varies across firm life cycle stages. Using US data, this study shows that idiosyncratic volatility is significantly higher in the introduction and decline stages, and significantly lower in the growth and mature stages, when compared to that in the shake-out stage. Our study also reveals that the roles of both cash flow volatility and information uncertainty in affecting idiosyncratic volatility vary depending on firm life cycle stages. Our results are robust to alternative specifications of life cycle proxies and idiosyncratic volatility, and to an alternative regression specification.

Firm Life Cycle and Advisory Directors

This article investigates whether the presence of advisory directors and monitoring directors varies across firm life cycle stages. We follow a parsimonious life cycle proxy based on the predicted behaviour of operating, investing and financing cash flows across the different life cycle stages that result from firm performance and the allocation of resources. Using an Australian sample, this study shows that compared to mature-stage firms, firms in the introduction, shake-out and decline stages have more advisory directors. With respect to the demand for monitoring directors, we find that compared to mature-stage firms, firms in the introduction, shake-out and decline stages have fewer monitoring directors on the board. We contribute to the literature on boards of directors by documenting that firms choose an optimal board structure based on their economic characteristics.

기업 성장단계별 도산위험에 대한 지식재산의 차별적 영향 분석

기업 성장단계별 도산위험에 대한 지식재산의 차별적 영향 분석

Association between Overinvestment Propensity and Firm Performance or Valuation: Role as Firm Life Cycle

Association between Overinvestment Propensity and Firm Performance or Valuation: Role as Firm Life Cycle

Firm Life Cycle and Analyst Forecast Behavior

This study examines how analyst forecast behavior varies over the firm life cycle. While mispricing by investors and firms’ visibility concerns could increase both the supply and demand for analyst services in early-stage firms, forecasting difficulty and limited visibility could in contrast reduce analysts’ incentives to follow these firms. Consistent with analysts responding to investor needs, we find that analyst following is higher for firms in the introduction and growth stage. With regard to forecast accuracy, we find that whereas analyst forecasts are less accurate in the introduction, shake-out and decline stage, analysts issue more accurate forecasts for firms in the growth stage. Additionally, forecast accuracy increases when there is life cycle alignment between the firm and its industry, reflecting the greater extent to which analysts can be benefit from their industry expertise under these circumstances. Yet, forecast accuracy decreases after life cycle changes, suggesting that analyst do not immediately incorporate changes in the earnings generating process after a life cycle shock.

Dynamics of financial leverage across firm life cycle in Chinese firms: an empirical investigation using dynamic panel data model

This study tries to investigate how firms adjust their leverage policy across the firm’s life cycle. For this purpose the study uses an extensive set of data of 867 A listed Chinese non-financial firms over a nineteen years period (1996-2014). The study employs Arellano-Bover/Blundell-Bond dynamic panel data model to estimate adjustment rate of leverage and its determinants in three different life stages of Chinese firms. We find that adjustment rate of leverage varies for different life stages. In accordance with trade off theory of capital structure this study reports a low-high-low pattern of leverage across growth, maturity and decline stage of firms’ life respectively. For total leverage, dynamic panel data reports highest adjustment rate for growing firms, followed by mature firms and firms in declining stage of their life. Both short term and long term leverage report similar pattern of leverage’s adjustment rate across the three stages of life cycle. The study provides useful insight in a unique market setting of Chinese financial markets.

POPULATION AGING AND PUBLIC PENSION: THE CASE OF BEIJING ANALYZED BY AN OLG MODEL

This paper employs an overlapping-generations (OLG) model with altruistic motive and lifetime uncertainty to investigate the urban public pension system in China. Focusing on the case of Beijing, we examine the effects of the individual contribution rate, firm contribution rate, life expectancy and population growth rate on the capital-labor ratio, savings, per capita consumption and pension benefits. By controlling the firm contribution rate to adjust the capital-labor ratio of the market economy to the modified golden rule level, we find the optimal firm contribution rate. We also discuss the optimal firm contribution rate in Beijing under three cases: risen life expectancy, fallen population growth rate and the joint case of risen life expectancy and fallen population growth rate, and estimate the optimal firm contribution rate in 2020s. Integrating the established effects and the current economic goals, it is concluded that it will do more good than harm to strictly implement Beijing municipal population policy, improve the living and medical conditions, reduce the firm contribution rate, and raise the individual contribution rate.

Firm Life Cycle, Corporate Social Responsibility, and Earnings Management

본 연구는 기업의 수명주기에 따라 CSR활동이 차이를 보이는지를 검증한다. 또한 기존 연구에서 논의하는 기업수명주기와 이익조정간 관련성이 CSR활동에 의해 달라지는지 분석하기 위하여 수명주기와 재량적발생액에 대한 CSR활동의 조절효과를 검증한다. 분석결과, 성장단계에 속하는 기업은 CSR활동이 소극적인 것으로 나타났다. 반면, 성숙단계에 속하는 기업은 수익성과 유동성을 담보로 광범위한 이해관계자의 요구에 대응하며 적극적인 CSR을 이행한다는 사실을 발견하였다. 쇠퇴단계의 기업은 매출액 하락 등으로 인한 재무적 위험의 증가로 CSR활동이 저조한 것으로 나타났다. 그리고 성장기와 쇠퇴기에 속하는 기업이 성숙기 기업보다 이익조정을 많이 하는 것으로 나타났다. 성장기에 속하는 기업은 이익을 상향조정하며 쇠퇴기에 속하는 기업은 이익을 하향조정하는 경향이 있다는 증거를 발견하였다. 다만, 성장기에 속하는 기업이라 하더라도 CSR활동을 수행하는 기업은 이익조정 경향이 완화된다는 사실을 확인하였다. 본 연구는 수명주기 단계별 다차원적인 기업의 특성이 차별적인 CSR활동을 수행하도록 유도하는 요인이 될 수 있다는 함의를 제시함으로써 CSR활동에 영향을 미치는 요인을 규명하고 CSR활동의 유 · 무형적 성과를 논의하는 선행연구에 공헌할 것으로 기대한다.

The Real Options Component and Market Value of Taiwan Technological Companies

ABSTRACTReal options valuation has been applied in real investment extensively. However the empirical researches of real options components’ value are seldom studied. This study uses the panel data model to test whether the stock prices of Taiwan listed companies reflect investor’s expectations regarding the value of real options. This article demonstrates that investors cannot ignore the real options components when evaluating stock market value. The results also confirm that the proportion of a firm’s market value not due to assets-in-place is significantly and positively related to the variables of stock beta, skewness of stock returns, size, capital stock, and research and development. In addition, firms with lower firm life cycle have a higher real options value.