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.

We use an implicit alternating direction numerical procedure to estimate the value of a fixed-rate mortgage (FRM) with embedded default and prepayment options. The value of FRMs depends on interest rates, the house value, and mortgage maturity. Our numerical results suggest that the joint option value of prepayment and default is considerably high, even at loan origination. We extend the model to include prepayment penalties in FRM valuation.

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In this paper we analyze the relationship between bankruptcy risk and the corporate life 14 cycle in Pakistan from 2005 to 2014. For this purpose, we run a Hierarchical Linear Mixed Model 15 (HLM) for a sample of 301 non-financial listed firms in 12 different sectors. The empirical outcomes 16 reveal that firms during introduction, growth and, decline stages (mature stage) of life-cycle 17 experience higher (lower) bankruptcy risk. Moreover, in juxtaposition with growth stage, bankruptcy 18 risk is higher at the introduction stage of life-cycle. These findings suggest that financial managers 19 should be cautious about the financial fragility of the firm at each stage of corporate life-cycle. The 20 results also entail that Pakistani firms do not follow a sequential pattern in their life-cycle rather they 21 have the tendency to revert to a previous stage or jump to the next stage of life-cycle. This is the first 22 study that empirically examines the association between firm life-cycle stage and corresponding 23 bankruptcy risk and asserts that managers must incorporate the life-cycle effects into their financial 24 planning and decision making for sustainable working of an enterprise.25