Refining the Firm Life Cycle Classification Method: A Firm Value Perspective

Jaafar, Hartini; Halim, Hazianti Abdul

doi:10.7763/joebm.2016.v4.376

Cited by 19 publications

(18 citation statements)

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“…During this stage, firms require substantial investments and have more opportunities to invest in positive NPV (NPV is difference between present value of future cash inflows and present value of future cash outflows over project life.) projects [32]. Consequently, these firms are likely to bear higher debt ratios than growth and mature firms [33].…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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

Akbar

Tang

et al. 2019

Sustainability

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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.

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Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

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

Akbar

Tang

et al. 2019

Sustainability

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“…Consequently, this will affect the number of stages proposed in the life cycle models. Studies have to deal with issues in determining which model is superior or what number should be for the stages that best reflect the evolution or development of a firm (Jaafar & Halim, 2015). Even though studies suggest a different number of stages from three to ten, all firms evolve through the same series of stages.…”

Section: Corporate Life Cycle Stagesmentioning

confidence: 99%

“…Firms can be described regarding life cycle stages that depend on the strategies, organizational structure and the uncertainty that they face during a particular period in its life similar to an individual product (Jaafar & Halim, 2015). The concept of corporate life cycle which is derived from microeconomics and marketing shows various differences from product life cycle.…”

Section: Introductionmentioning

confidence: 99%

Corporate life cycle methods in emerging markets: evidence from Turkey

Güleç¹,

Karacaer²

2017

Pressacademia

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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.

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“…For instance, while Yonpae and Chen (2006) modifiy the Anthony and Ramesh (1992) study regarding dividend variable and the scoring system, Aharony et al, (2006) standardize the variables. The cost of goods sold (Liu 2006), market value/book value (Jaafar and Halim 2015) are other variables used in the literature. DeAngelo et al, (2006) determine the life cycle stages with the term of earned/contributed capital mix through using retained earnings, Dickinson (2011) uses cash profiles of firms to build a parsimonious methodology.…”

Section: Life Cycle Methodsmentioning

confidence: 99%