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

2020 ◽  
Vol 537 ◽  
pp. 122550 ◽  
Author(s):  
Farrukh Shahzad ◽  
Zeeshan Fareed ◽  
Zhenkun Wang ◽  
Syed Ghulam Meran Shah
Keyword(s):  
Life Cycle ◽  
Idiosyncratic Risk ◽  
Market Risk ◽  
Total Risk ◽  
Firm Life Cycle ◽  
Life Cycle Stages

The Corporate Life Cycle and the Cost of Equity

2019 ◽  
Vol 14 (1) ◽  
Author(s):  
Sergio Bravo
Keyword(s):  
Life Cycle ◽  
Cash Flow ◽  
Cost Of Capital ◽  
Theory And Practice ◽  
Cost Of Equity ◽  
Firm Life Cycle ◽  
Link Type ◽  
Life Cycle Stages ◽  
Corporate Life Cycle ◽  
The Cost

Abstract A widely used methodology for estimating the beta of companies with the Capital Asset Pricing Model (CAPM) uses comparable firms based only on industry or sector classifications (Bancel, F., and U. R. Mittoo. 2014. “The Gap between the Theory and Practice of Corporate Valuation: Survey of European Experts.” Journal of Applied Corporate Finance 26, no. 4 (Fall): 106–17. doi:https://doi.org/10.1111/jacf.12095, 112; KPMG. 2017. “Cost of Capital Study 2017: Diverging Markets, Converging Business Models.” Accessed September 28, 2018. https://assets.kpmg.com/content/dam/kpmg/ch/pdf/cost-of-capital-study-2017-en.pdf, 37). We hypothesize that even within industries, there is a significant relationship between the cost of equity and the life cycle of a firm. We argue that these variables are correlated because different life-cycle stages exhibit different degrees of systematic risk. Therefore, as the firm moves along its life cycle, its unlevered beta decreases. We define the stages of the firm life cycle based on a modification of the theoretical typology of (Miller, D., and P. Friesen. 1984. “A Longitudinal Study of the Corporate Life-Cycle.” Management Sciences 30 (10): 1161–83. http://www.jstor.org/stable/2631384, 1162–3) and then classify a sample of listed companies into these stages using (Dickinson, V. 2011. “Cash Flow Patterns as a Proxy for Firm Life-Cycle.” The Accounting Review 86 (6): 1969–94. doi:https://doi.org/10.2308/accr-10130) cash flow statements methodology. We construct value-weighted portfolios that are formed based on our life-cycle stages classification, adapting the procedure of (Fama, E., and K. R. French. 1993. “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33 (1): 3–56. doi:https://doi.org/10.1016/0304-405X(93)90023-5). Finally, we compare the betas (levered and unlevered) of these portfolios to determine whether there are statistically significant differences. Our results show clear evidence of a relationship between betas and the corporate life cycle and that this relationship is robust to both changes in the period of analysis and omitted variables bias (when controlling with the four-factor model of (Carhart, M. M. 1997. “On Persistence in Mutual Fund Performance.” The Journal of Finance 52 (1): 57–82. doi:https://doi.org/10.1111/j.1540-6261.1997.tb03808.x). We believe our results show an important shortcoming in a widely used methodology among practitioners for estimating the CAPM.

scholarly journals ENGARUH BIAYA KEAGENAN, TAHAP DAUR HIDUP PERUSAHAAN, KEBIJAKAN DIVIDEN TERHADAP NILAI PERUSAHAAN DENGAN KEBIJAKAN UTANG SEBAGAI VARIABEL PEMODERASI PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BEI

2018 ◽  
Vol 3 (2) ◽  
pp. 172
Author(s):  
Muhammad Yasfi ◽  
Kurniawan Ali Fachrudin
Keyword(s):  
Life Cycle ◽  
Firm Value ◽  
Stock Exchange ◽  
Agency Cost ◽  
Managerial Ownership ◽  
Manufacturing Companies ◽  
Best Interest ◽  
Firm Life Cycle ◽  
Life Cycle Stages ◽  
Debt Policy

One of the company's main objective was to enhance firm value through increased prosperity of the owners or shareholders. The separation of ownership from management in corporation creates agency problem. Managers who run companies and usually do not have stock ownership may not act in the shareholder’s best interest because they maximize their own wealth.The objective of this research was to examine whether there was an effect of agency cost (dispersion of ownership and managerial ownership), firm life cycle stages, and dividend policy on firm value with debt policy as moderating variable. The population of the study is the manufacturing companies that registered in Indonesian Stock Exchange in the period of 2002–2012. Samples of 88 observations are selected using purposive sampling method. The analysis method of this research was simple regression and Moderated Regression Analysis (MRA).The result showed that dispersion of ownership and firm life cycle stages can influence firm value. The result also showed that debt policy can moderating dispersion of ownership influence firm value.

scholarly journals Firm life cycle and advisory directors

2017 ◽  
Vol 43 (4) ◽  
pp. 575-592 ◽  
Author(s):  
Ahsan Habib ◽  
Md. Borhan Uddin Bhuiyan ◽  
Mostafa Monzur Hasan
Keyword(s):  
Life Cycle ◽  
Boards Of Directors ◽  
Cash Flows ◽  
Jel Classification ◽  
Mature Stage ◽  
Board Structure ◽  
Allocation Of Resources ◽  
Firm Life Cycle ◽  
Life Cycle Stages ◽  
Australian Sample

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

Structuring and Bundling Resources for Innovation in Different Firm Life Cycle Stages

2014 ◽  
Vol 2014 (1) ◽  
pp. 13726
Author(s):  
Francesco Chirico ◽  
Christina M. Carnes ◽  
Dong Wook Huh ◽  
Michael A. Hitt ◽  
Vincenzo Pisano
Keyword(s):  
Life Cycle ◽  
Firm Life Cycle ◽  
Life Cycle Stages

scholarly journals The effect of firm life cycle on profitability: Evidence from Jordanian firms

2021 ◽  
pp. 1919-1926
Author(s):  
Abdullah Aldaas
Keyword(s):  
Life Cycle ◽  
Performance Measure ◽  
Mature Stage ◽  
Current Ratio ◽  
Firm Life Cycle ◽  
Life Cycle Stages ◽  
Time Period ◽  
Panel Data Regression ◽  
Data Regression ◽  
The Impact

Profitability is an important performance measure and a related study based on the life cycle of firms is appreciated by researchers and managers. The impact of the financial crisis adds novelty to such research. This study discusses the impact of financial ratios on profitability of firms under the influence of financial crises. It is based on a sample of 42 Jordanian firms and uses panel data regression on an annual dataset for the time period 2000-2018. The study found mature stage firms to be explained best with the suggested model. The impact of current ratio on the profitability of all companies was observed as positive while the profitability is found to be negatively affected by debt for all life cycle stages except for the declining stage. Also, it is found that the declining stage firms need to rely on debt to stay profitable and sustain.

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

2020 ◽  
pp. 026624262094337
Author(s):  
Florian E Klonek ◽  
Thierry Volery ◽  
Sharon K Parker
Keyword(s):  
Life Cycle ◽  
Life Cycle Stage ◽  
Exploration And Exploitation ◽  
Firm Life Cycle ◽  
Life Cycle Stages ◽  
Activity Cycles ◽  
The Individual

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.

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

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Carolina Magda da Silva Roma ◽  
Luiz Cláudio Louzada ◽  
Paula Magda da Silva Roma ◽  
Hiromitsu Goto ◽  
Wataru Souma
Keyword(s):  
Life Cycle ◽  
Earnings Management ◽  
Policy Uncertainty ◽  
Publicly Traded ◽  
Content Type ◽  
Economic Policy Uncertainty ◽  
Publicly Traded Companies ◽  
Firm Life Cycle ◽  
Life Cycle Stages ◽  
The Usa

Purpose This 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/approach The 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. Findings The 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/value This 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.

scholarly journals Does Firm Life Cycle Impact Corporate Investment Efficiency?

2020 ◽  
Vol 13 (1) ◽  
pp. 197
Author(s):  
Bilal Ahmed ◽  
Minhas Akbar ◽  
Tanazza Sabahat ◽  
Saqib Ali ◽  
Ammar Hussain ◽  
...  
Keyword(s):  
Life Cycle ◽  
Fixed Effects ◽  
Corporate Investment ◽  
Ordinary Least Squares ◽  
Investment Efficiency ◽  
Investment Policies ◽  
Firm Life Cycle ◽  
Life Cycle Stages ◽  
Growth Firms

Corporate investment efficiency (CIE) is an imperative factor influencing the smooth functioning and financial sustainability of an enterprise. The role of a firm life cycle on risk and performance fundamentals has been extensively explored in the literature. However, it remains unclear as to whether the life cycle stages of a firm have any impact on corporate investment efficiency. This paper investigates the role of firm life cycle stages (FLCS) in determining the investment efficiency of 351 Pakistani non-financial listed firms over the course of 12 years (2005–2016). It used panel data fixed effects and ordinary least squares (OLS) techniques to empirically examine the proposed relationship. By employing Dickinson’s FLCS measure, we found that CIE was lower during the introduction and decline stages and higher at the growth and maturity stages of a firm’s life cycle. Moreover, the results of regression analysis revealed that mature firms enjoyed the highest level of investment efficiency followed by the growth firms. Overall, CIE exhibited an inverted U-shaped trend across FLCS. In addition, the findings corroborated the idea that the sample firms could not sustain their investment efficiency when they moved along different stages of the life cycle. Thus, policymakers are suggested to customize their investment policies for each stage of FLC to attain sustainable financial performance throughout the life of a firm.

Sign in / Sign up

Export Citation Format

Share Document