scholarly journals Unraveling the Bankruptcy Risk‒Return Paradox across the Corporate Life Cycle

2020 ◽  
Vol 12 (9) ◽  
pp. 3547 ◽  
Author(s):  
Minhas Akbar ◽  
Ahsan Akbar ◽  
Petra Maresova ◽  
Minghui Yang ◽  
Hafiz Muhammad Arshad
Keyword(s):  
Life Cycle ◽  
Risk Taking ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Mature Stage ◽  
Financial Sustainability ◽  
Risk Averse ◽  
Bankruptcy Risk ◽  
Risk Return ◽  
Corporate Life Cycle

Bankruptcy risk is a fundamental factor affecting the financial sustainability and smooth functioning of an enterprise. The corporate bankruptcy risk‒return association is well founded in the literature. However, there is a dearth of empirical research on how this association prevails at different stages of the corporate life cycle. The present study aims to investigate the bankruptcy‒risk relationship at different stages of corporate life cycle by employing Hierarchical Linear Mixed Model (HLMM) regression estimation on the data of listed non-financial Pakistani firms from 12 diverse industrial segments. We grouped the firms into introduction, growth, mature, shake-out, and decline stages of the life cycle using Dickinson’s model. Empirical results assert that corporate risk-taking at the introduction stage yields superior financial performance in the future, while risk at the growth stage positively contributes to a firm’s current performance. Moreover, because of risk-averse and non-diversified managerial behavior, bankruptcy risk at the mature stage is negatively associated with both current and future performance. Likewise, risk-taking at the decline stage has significant negative implications for firm performance as the managers of such firms undertake heavy investments in a turnaround attempt; however, owing to the risk-averse behavior, they may indulge in negative net present value (NPV) projects. The study findings imply that managers synchronize a firm’s risk exposure with the corresponding life cycle stage to avoid going bankrupt. Moreover, excessive risk-taking during the mature and decline stages can considerably harm the financial sustainability of an enterprise. Hence, investors should exercise a degree of caution when investing in highly indebted later-stage (mature and decline) firms. Overall, bankruptcy risk‒return resembles an inverted U-shaped relationship. Our results are robust and can apply to various econometric specifications.

scholarly journals Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan

2019 ◽  
Vol 11 (3) ◽  
pp. 678 ◽  
Author(s):  
Ahsan Akbar ◽  
Minhas Akbar ◽  
Wenjin Tang ◽  
Muhammad Qureshi
Keyword(s):  
Life Cycle ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Life Cycle Stage ◽  
Mature Stage ◽  
Bankruptcy Risk ◽  
Listed Firms ◽  
Firm Life Cycle ◽  
Corporate Life Cycle ◽  
The Relationship

In this paper we analyze the relationship between bankruptcy risk and the corporate life cycle in Pakistan from 2005 to 2014. For this purpose, we run a Hierarchical Linear Mixed Model (HLM) for a sample of 301 non-financial listed firms in 12 different sectors. The empirical outcomes reveal that firms during introduction, growth and, decline stages (mature stage) of life-cycle experience higher (lower) bankruptcy risk. Moreover, in juxtaposition with growth stage, bankruptcy risk is higher at the introduction stage of life-cycle. These findings suggest that financial managers should be cautious about the financial fragility of the firm at each stage of corporate life-cycle. The results also entail that Pakistani firms do not follow a sequential pattern in their life-cycle, rather they have the tendency to revert to a previous stage or jump to the next stage of life-cycle. This is the first study that empirically examines the association between firm life-cycle stage and corresponding bankruptcy risk and asserts that managers must incorporate the life-cycle effects into their financial planning and decision making for the sustainable working of an enterprise.

scholarly journals Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan

2019 ◽  
Author(s):  
Ahsan Akbar ◽  
Minhas Akbar ◽  
Wenjin Tang ◽  
Muhammad Azeem Qureshi
Keyword(s):  
Life Cycle ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Life Cycle Stage ◽  
Mature Stage ◽  
Bankruptcy Risk ◽  
Listed Firms ◽  
Firm Life Cycle ◽  
Corporate Life Cycle ◽  
The Relationship

In this paper we analyze the relationship between bankruptcy risk and the corporate life cycle in Pakistan from 2005 to 2014. For this purpose, we run a Hierarchical Linear Mixed Model (HLM) for a sample of 301 non-financial listed firms in 12 different sectors. The empirical outcomes reveal that firms during introduction, growth and, decline stages (mature stage) of life-cycle experience higher (lower) bankruptcy risk. Moreover, in juxtaposition with growth stage, bankruptcy risk is higher at the introduction stage of life-cycle. These findings suggest that financial managers should be cautious about the financial fragility of the firm at each stage of corporate life-cycle. The results also entail that Pakistani firms do not follow a sequential pattern in their life-cycle rather they have the tendency to revert to a previous stage or jump to the next stage of life-cycle. This is the first study that empirically examines the association between firm life-cycle stage and corresponding bankruptcy risk and asserts that managers must incorporate the life-cycle effects into their financial planning and decision making for sustainable working of an enterprise.

scholarly journals Sentiments–Risk Relationship across the Corporate Life Cycle: Evidence from an Emerging Market

Economies ◽  
2021 ◽  
Vol 9 (3) ◽  
pp. 111
Author(s):  
Minhas Akbar ◽  
Ahsan Akbar ◽  
Muhammad Azeem Qureshi ◽  
Petra Poulova
Keyword(s):  
Life Cycle ◽  
Risk Taking ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Life Cycle Stage ◽  
Risk Propensity ◽  
Bankruptcy Risk ◽  
Growth Firms ◽  
Corporate Life Cycle ◽  
Investment Portfolios

The influence of market sentiments on the bankruptcy risk propensity of firms has been extensively explored in the literature. However, less attention has been paid to whether the corporate life cycle plays any role in this nexus. The purpose of this research is to unveil how the corporate bankruptcy risk propensity responds to market sentiments, and whether this sentiments–risk relationship varies over different stages of the corporate life cycle. Using a sample of 301 Pakistani non-financial listed firms for 2005–2014, we employ two-step generalized method of moments (GMM) regression estimation to address the issue of endogeneity. Empirical evidence reveals that managers tend to escalate a firm’s bankruptcy risk during high market sentiments. Further analysis indicates that during the period of positive market sentiments, introduction stage firms prefer to assume the highest bankruptcy risk followed by decline and growth firms, while mature firms continue to be risk-averse. This research contributes to the corporate finance literature by suggesting that managerial risk-taking is influenced by market sentiments and corporate managers show a different attitude towards risk at different stages of the corporate life cycle. Therefore, to ensure enterprise sustainability, capital market regulators should have a robust risk management framework in place to discipline the excessive risk-taking by firm managers over different stages of the corporate life cycle. Moreover, investors and creditors shall take into consideration the respective life cycle stage of the firm to minimize the risk exposure of their investment portfolios. Our results are robust to alternate econometric specifications and alternate variable specifications.

scholarly journals Does the life cycle affect earnings management and bankruptcy?

2021 ◽  
Vol 12 (2) ◽  
pp. 425-461
Author(s):  
Pavol Durana ◽  
Lucia Michalkova ◽  
Andrej Privara ◽  
Josef Marousek ◽  
Milos Tumpach
Keyword(s):  
Life Cycle ◽  
Earnings Management ◽  
Financial Performance ◽  
Financial Management ◽  
Mixed Model ◽  
Value Added ◽  
Bankruptcy Risk ◽  
Corporate Life Cycle ◽  
The Impact

Research background: Deteriorating economic conditions and a negative outlook increase the pressure on financial management and the need to show high financial performance. According to Positive Accounting Theory, the growing risk of bankruptcy is associated with the phenomenon of earnings management. Bankruptcy risk and the quality of reported profits, along with other aspects of financial performance, vary throughout the company's life cycle. Nevertheless, these factors or their interactions are investigated only to a very small extent. Purpose of the article: The aim of this study is to clarify the impact of corporate life cycle and bankruptcy on earnings management, in order to describe behaviour of companies at different stages of corporate life cycle. Methods: A hierarchical mixed model with a random time and industry effect was chosen as appropriate because it allows the investigation of multilevel data that is not independent. The sample covers the financial indicators of more than 33,000 Central European companies from 2015?2019. The non-sequential Dickinson model, company age, and three models of accrual earnings management were used as proxies for the company's life cycle and quality of reported profit. Findings & value added: Earnings management and bankruptcy risk have a U-shape, indicating that financially distressed firms reduce reported accounting profit at the Introduction, Decline and, to a lesser extent, at the Growth stage. Slovak and Czech companies manipulate profits to a similar extent, Hungarian companies increase accounting profit to a greatest extent than the surveyed countries by controlling bankruptcy ? life cycle effect; however, the variability of accounting manipulations across industries has not been demonstrated. These findings imply that start-ups and declining businesses provide crooked financial statements to obtain more favourable debt covenants, and estimating discretionary accruals using life-cycle subsamples can improve the predictive power of accrual earnings management models.

scholarly journals Corporate Life Cycle and the Explanatory Power of Risk Measures versus Performance Measures

2011 ◽  
Vol 2 (6) ◽  
pp. 199-206 ◽  
Author(s):  
Hamed Omrani ◽  
Saber Samadi . ◽  
Ahmad Kazemi Margavi . ◽  
Hamid Asadzadeh . ◽  
Hemad Nazari .
Keyword(s):  
Life Cycle ◽  
Performance Measures ◽  
Regression Models ◽  
Stock Exchange ◽  
Risk Measures ◽  
Explanatory Power ◽  
Financial Information ◽  
Mature Stage ◽  
Life Cycle Stages ◽  
Corporate Life Cycle

The major aim of this paper is to compare the explanatory power of risk measures versus performance measures in different life-cycle stages. To test the hypotheses, first, sample firms were classified into three life-cycle stages (Growth, Mature and Decline). Then, using regression models and Vuong's Z-statistic, the hypotheses were investigated. In this study, financial information of 75 firms which were accepted at Tehran’s Stock Exchange (TSE) from 2003 to 2008 (450 firm-years) was examined. The results of this study show that in growth and decline stages, the explanatory power of risk measures is significantly higher than performance measures and in mature stage, the opposite is true.

The Impact of the Corporate Life‐Cycle on the Value‐Relevance of Disaggregated Earnings Components

2004 ◽  
Vol 3 (4) ◽  
pp. 5-20 ◽  
Author(s):  
David S. Jenkins ◽  
Gregory D. Kane ◽  
Uma Velury
Keyword(s):  
Life Cycle ◽  
Value Relevance ◽  
Mature Stage ◽  
Strategic Actions ◽  
Stock Market Reaction ◽  
Earnings Components ◽  
Life Cycle Stages ◽  
Corporate Life Cycle ◽  
The Impact ◽  
Earnings Change

We investigate the relative roles of key components of earnings change in explaining the value relevance of earnings across different life‐cycle stages of the firm. We hypothesize that firms in different life‐cycle stages take different strategic actions: change in sales is emphasized in the growth and mature stages, while in later stages, profitability is emphasized. Because payoffs to such strategies vary across the life‐cycle, the stock market reaction to the success firms have in employing these strategic actions is likely to vary across the life‐cycle. To test our hypotheses, we disaggregate changes in earnings into three key components: earnings change from change in sales, earnings change from change in profitability, and an interaction term comprising both sales change and profitability change. Our findings are consistent with our hypotheses: when firms are in the growth stage, the value‐relevance of change in sales is relatively greater than that of change in profitability. In the mature stage, the value relevance of change in profitability increases, relative to that of change in sales. When firms are in stagnant stage, the value‐relevance of changes in profitability are relatively greater than that of change in sales. Collectively, the results demonstrate a shift in the value relevance of earnings components from a growth emphasis early in the life‐cycle to a profitability emphasis later in the life‐cycle.

scholarly journals When Does Earnings Management Matter? Evidence across the Corporate Life Cycle for Non-Financial Chinese Listed Companies

2020 ◽  
Vol 13 (12) ◽  
pp. 313 ◽  
Author(s):  
Ammar Hussain ◽  
Minhas Akbar ◽  
Muhammad Kaleem Khan ◽  
Ahsan Akbar ◽  
Mirela Panait ◽  
...  
Keyword(s):  
Life Cycle ◽  
Panel Data ◽  
Earnings Management ◽  
Fixed Effects ◽  
Management Practices ◽  
Real Earnings Management ◽  
Earning Management ◽  
Bankruptcy Risk ◽  
Corporate Managers ◽  
Corporate Life Cycle

Information availability, firm performance, idiosyncratic volatility and bankruptcy-risk vary across the Corporate Life Cycle (CLC) stages. The purpose of this paper is to examine whether CLC stages explain firm’s propensity to engage in both accrual base and real earning management practices in the context of China. Panel data of 3250 non-financial Chinese listed firms spanning from 2009 to 2018 is used to investigate the proposed relationship. CLC stages were captured through Dickinson’s model, while earnings management is measured by employing both techniques, i.e., accruals-base earnings management and real earnings management. The data were analyzed through Panel data fixed-effects and random-effects techniques. Results reveal that, when compared to shakeout phase, managers’ response to use both earnings management practices is significantly higher during introduction and decline phases, and lower during growth and mature stages of CLC. It suggests that introductory and later-staged firms distort their factual financial information from creditors to obtain loans without strict debt covenants. Our results are robust to alternate measures and specifications. The core contribution of this research is to add a fresh perspective to the CLC research by uncovering its imperative role in influencing the earning management behavior of corporate managers.

Analyzing discontinuities in longitudinal count data: A multilevel generalized linear mixed model.

2020 ◽  
Author(s):  
James L. Peugh ◽  
Sarah J. Beal ◽  
Meghan E. McGrady ◽  
Michael D. Toland ◽  
Constance Mara
Keyword(s):  
Count Data ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Generalized Linear Mixed Model ◽  
Longitudinal Count Data

Predicting bycatch hotspots based on suitable habitat derived from fishery-independent data

2020 ◽  
Vol 641 ◽  
pp. 159-175
Author(s):  
J Runnebaum ◽  
KR Tanaka ◽  
L Guan ◽  
J Cao ◽  
L O’Brien ◽  
...  
Keyword(s):  
Habitat Suitability ◽  
Mixed Model ◽  
Linear Mixed Model ◽  
Gulf Of Maine ◽  
Homarus Americanus ◽  
Management Tool ◽  
American Lobster ◽  
Suitable Habitat ◽  
Climate Conditions ◽  
Suitability Index

Bycatch remains a global problem in managing sustainable fisheries. A critical aspect of management is understanding the timing and spatial extent of bycatch. Fisheries management often relies on observed bycatch data, which are not always available due to a lack of reporting or observer coverage. Alternatively, analyzing the overlap in suitable habitat for the target and non-target species can provide a spatial management tool to understand where bycatch interactions are likely to occur. Potential bycatch hotspots based on suitable habitat were predicted for cusk Brosme brosme incidentally caught in the Gulf of Maine American lobster Homarus americanus fishery. Data from multiple fisheries-independent surveys were combined in a delta-generalized linear mixed model to generate spatially explicit density estimates for use in an independent habitat suitability index. The habitat suitability indices for American lobster and cusk were then compared to predict potential bycatch hotspot locations. Suitable habitat for American lobster has increased between 1980 and 2013 while suitable habitat for cusk decreased throughout most of the Gulf of Maine, except for Georges Basin and the Great South Channel. The proportion of overlap in suitable habitat varied interannually but decreased slightly in the spring and remained relatively stable in the fall over the time series. As Gulf of Maine temperatures continue to increase, the interactions between American lobster and cusk are predicted to decline as cusk habitat continues to constrict. This framework can contribute to fisheries managers’ understanding of changes in habitat overlap as climate conditions continue to change and alter where bycatch interactions could occur.

Sign in / Sign up

Export Citation Format

Share Document