Corporate life cycle methods in emerging markets: evidence from Turkey

Abstract

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.

Does maturity signals high risk and high return?

“…The findings of this study of ratio of retained earnings over total equities (RETE) on systematic risk based on stock returns and total returns also inconsistent with the findings of Grullon et al (2002), Gulec and Karacaer (2017), and Budiarso et al (2019). The findings imply that the maturity of Indonesian firms (limited to sample) have close relationship with systematic risk or market risk which means mature firms are more risky in the market.…”

“…Recently, Budiarso et al (2019) confirm that systematic risk have insignificant impact on mature firms with higher dividend distribution. Gulec and Karacaer (2017) also confirm that mature firms normally have higher profitability and higher stock returns although they have lower risk relative to growth firms. Moreover, Lakonishok and Shapiro (1986), and Bollerslev and Zhang (2003) find that more risky firms then higher stock returns.…”

Firm Life Cycle and Financial Performance: Evidence from Nigeria

“…These results when compared and contrasted against previous empirical results can be classified into three. The first group that agrees with the findings of this study are Wahba and Elsayed (2014), Hossain (2014), Gunu and Adamade (2015), Oluwatayo et al (2016), Zhou et al (2016), Gulec and Karacaer (2017) and Costa et al (2017). However, the second group completely disagrees with the findings of this study and they include Chang et al (2017), Habib and Hassan (2017), Bayat and Noshahr (2018) and Shahzad et al (2019).…”

“…They also find that during introduction and decline stage (growth and maturity stage) affect future performance positively. Gulec and Karacaer (2017) analyze the firm life cycle and financial performance indicators. They 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.…”

Does the life cycle affect earnings management and bankruptcy?

“…In addition to the life cycle and the risk of bankruptcy (financial distress), we used other control variables that affect the value of corporate earnings management. Based on studies by Gulec and Karacaer (2017), Faff et al (2016) Habib and Hasan (2017) and Hussain et al (2020), we selected five corporate financial indicators (tangibility, profitability, corporate growth, corporate size, operational risk), which we assume have a significant impact on the level of earnings management in the company. Paulo and Gurgel Mota (2019), following Cohen and Zarowin (2007), argue that earnings manipulations are contaminated with GDP variability; the yearon-year percentage change in real GDP is used in the model to control this country level effect.…”