Do corporate policies follow a life-cycle?

We examine whether corporate investment, financing, and cash policies are interdependent and follow a predictable pattern in line with the firm life-cycle. We find that investments and equity issuance decrease with firm life-cycle, while debt issuance and cash holdings increase in the introduction a...

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Bibliographic Details
Published inJournal of banking & finance Vol. 69; pp. 95 - 107
Main Authors Faff, Robert, Kwok, Wing Chun, Podolski, Edward J., Wong, George
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.08.2016
Elsevier Sequoia S.A
Subjects
Capital investments
Cash management
Cash policy
Corporate finance
Financing decisions
Interdependence
Investment decisions
Life cycles
Life-cycle theory
Studies
Financing decisions
Life-cycle theory
G31
Cash policy
G30
G32
G35
Investment decisions
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Summary:We examine whether corporate investment, financing, and cash policies are interdependent and follow a predictable pattern in line with the firm life-cycle. We find that investments and equity issuance decrease with firm life-cycle, while debt issuance and cash holdings increase in the introduction and growth stages and decrease in the mature and shake-out/decline stages of the firm’s life-cycle. These results are robust after using various proxies for life-cycle and controlling for firm, CEO and board level characteristics. Collectively, our results show that corporate policies follow a firm life-cycle.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2016.04.009