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Article

Thomas O'Connor and Julie Byrne

– The purpose of this paper is to examine whether corporate governance changes along the corporate life-cycle.

Abstract

Purpose

The purpose of this paper is to examine whether corporate governance changes along the corporate life-cycle.

Design/methodology/approach

In a sample of 205 firms from 21 emerging market countries and using a life-cycle proxy from the dividends literature, the authors use a governance-prediction model which examines whether corporate governance differs along the corporate life-cycle.

Findings

Mature firms tend to practice better overall corporate governance. Discipline and independence improve as firms mature. Firms tend to be most transparent and accountable when they are young. These findings suggest that the resource/strategy and monitoring/control governance functions are relevant but at different life-cycle stages.

Research limitations/implications

In the absence of longitudinal governance data with sufficient coverage to track within-firm changes in corporate governance along the corporate life-cycle, the authors analyze differences in corporate governance between-firms at different life-cycle stages.

Originality/value

The authors use an alternative, yet new measure from the dividends literature to account for the firm’s position along the corporate life-cycle. With this new measure, the findings are in line with the predictions of Filatotchev et al. (2006).

Details

International Journal of Managerial Finance, vol. 11 no. 1
Type: Research Article
ISSN: 1743-9132

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Article

Febi Trihermanto and Yunieta Anny Nainggolan

This paper aims to examine the association between corporate social responsibility (CSR) and corporate life cycle as well as dividend policy in Indonesia.

Abstract

Purpose

This paper aims to examine the association between corporate social responsibility (CSR) and corporate life cycle as well as dividend policy in Indonesia.

Design/methodology/approach

The paper develops two hypotheses that are tested empirically through multivariate settings. The tests are conducted using a sample of 527 Indonesian listed firms and 923 Indonesian firm-year observations between 2008 and 2015.

Findings

The findings support the hypothesis that CSR expenses increase when firms enter the maturity stage of their life cycle. On the triple bottom line components of CSR, firms which invest on CSR economic are in their maturity stage of their life cycle. The evidence also suggests that firms’ social donation and charitable giving increase as firms become mature. Furthermore, the strong evidence supports the hypothesis that firms’ CSR expenses positively affect dividend policy. This finding is robust to the alternative measurement of dividend payout, additional firms’ characteristics and instrumental variable to address endogeneity.

Practical implications

For investors in Indonesian listed firms, it is more profitable to invest in socially responsible firms than socially irresponsible firms. For firms, the results imply that spending in CSR does not reduce performance, thus becoming attractive for investors.

Originality/value

To the best of the authors’ knowledge, there is thin literature investigating the relation between corporate life cycle, CSR, and dividend policy in emerging markets while it is important as it could encourage companies to integrate CSR into their business strategy and transparently disclose their CSR activities. Further, as previous research on these topics mainly conducted using the US data (Rakotomavo, 2012; Benlemlih, 2014; Hasan and Habib, 2017), which most of CSR disclosures are voluntary, this paper contributes to the existing literature by examining these topics in a country where CSR is mandatory by the law.

Details

Social Responsibility Journal, vol. 16 no. 2
Type: Research Article
ISSN: 1747-1117

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Article

Feng Jui Hsu

The purpose of this paper is to assess US-based firms from 2005 to 2015 to determine whether firms with better corporate social responsibility (CSR) performance will…

Abstract

Purpose

The purpose of this paper is to assess US-based firms from 2005 to 2015 to determine whether firms with better corporate social responsibility (CSR) performance will allocate capital through their life-cycle to better maintain or extend total assets.

Design/methodology/approach

Kinder, Lydenberg, Domini Research & Analytics social performance rating scores were used to measure CSR performance in an initial sample of 19,707 firm-year observations. Firms are first classified into stages including introduction, growth, maturity, and decline, and use multiclass linear discriminant analysis, the Dickinson classification scheme (Dickinson, 2011), and the ratio of retained earnings to total assets (RETA) as life-cycle proxies. Life-cycle was formulated based on a broad set of accounting data sourced from Compustat. Various corporate characteristics from the CRSP database were used to classify all sample firms into five equal groups based on their CSR performance.

Findings

A firm’s equity and debt issuance assume a hump shape over the life-cycle under CSR practice, and higher-CSR firms face fewer significant issues as they mature; payout, RETA, and free cash flow decreased from high-CSR performance firms to low-CSR performance firms; and cash holdings also exhibit a hump shape over the life-cycle and higher-CSR practices are associated with significantly lower cash holdings.

Originality/value

CSR performance is a useful predictor for forecasting firm life-cycle and superior CSR performance ensures efficient capital allocation throughout firm life-cycle. Furthermore, CSR practice is an indicator of firm life-cycle sustainability and indicates a firm’s future cash flow patterns.

Details

Management Decision, vol. 56 no. 11
Type: Research Article
ISSN: 0025-1747

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Book part

Haiyan Zhou, Hanwen Chen and Zhirong Cheng

In this paper, we investigate whether internal control and whether corporate life cycle would affect firm performance in the emerging markets of China.

Abstract

Purpose

In this paper, we investigate whether internal control and whether corporate life cycle would affect firm performance in the emerging markets of China.

Methodology/approach

We use Chen, Dong, Han, and Zhou’s (2013) internal control index on the effectiveness of internal control and Dickinson’s (2011) definition on firm life cycle. We use multivariate regression analysis.

Findings

We find that the internal control improves corporate performance. When dividing firm life cycle into five stages: introduction, growth, mature, shake-out and decline, we find that the impacts of internal control on firm performance vary with different stages. The positive impact of internal control on firm performance is more significant in maturity and shake-out stages than other stages.

Research limitations/implications

Our findings would have implications for the regulators and policy makers with regards to the importance of internal control in corporate governance and the effectiveness of implementing standards and guidelines on internal control in public firms.

Practical implications

In addition, our findings on the various roles of internal control at different stages of firm life cycle would help managers and board of directors find more focus in risk management and board monitoring, respectively.

Originality/value

Although the prior literature have examined the link between internal control, information quality and cost of equity capital (Ashbaugh-Skaife, Collins, Kinney, & LaFond, 2009; Ogneva, Subramanyam, & Raghunandan, 2007), our study would be the first attempt to investigate the link between internal control and firm performance during different stages of firm life cycles.

Details

The Political Economy of Chinese Finance
Type: Book
ISBN: 978-1-78560-957-2

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Article

Igor Filatotchev, Steve Toms and Mike Wright

The paper seeks to present a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems.

Abstract

Purpose

The paper seeks to present a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems.

Design/methodology/approach

The agency research agenda is extended to include other corporate governance roles, such as resource and strategy functions, alongside monitoring and control functions. Theoretical arguments are supported by empirical data related to the founder‐manager/IPO, IPO/maturity, maturity/decline and reinvention thresholds.

Findings

The paper shows that corporate governance parameters may be linked to strategic thresholds in the firm's lifecycle. Successful transition over a threshold is accompanied by a rebalancing in the structure and roles of corporate governance compared with each previous stage in the cycle.

Research limitations/implications

In the absence of longitudinal data relating to firms as they pass through all lifecycle stages the study has been restricted to reporting illustrative data from different studies regarding each strategic threshold. Further research might usefully undertake detailed long‐term case studies using a combination of archival and interview data to trace the evolution of firms across the four thresholds.

Originality/value

This paper develops a novel conceptual framework that integrates the strategic dynamics of the firm with changes in its governance systems. It rejects the notion of a universal governance template and argues that corporate governance parameters may be linked to transitions from one stage to another in the firm's lifecycle. Accordingly, it argues that changes in a firm's strategic positioning may be associated with rebalancing between the wealth‐protection and wealth‐creation functions of governance.

Details

International Journal of Managerial Finance, vol. 2 no. 4
Type: Research Article
ISSN: 1743-9132

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Article

Tifanny Dwijaya Hendratama and Yu-Chuan Huang

This study extends related research on corporate social responsibility (CSR) into the less-researched realm of Southeast Asia setting by investigating the role of life

Abstract

Purpose

This study extends related research on corporate social responsibility (CSR) into the less-researched realm of Southeast Asia setting by investigating the role of life cycle stages on the relationship between CSR and firm value.

Design/methodology/approach

This study uses a sample of 1,247 firm-year observations of firms listed in Southeast Asia from 2012 to 2018. Descriptive, multiple regression and sensitivity analyses are presented in the study.

Findings

The results provide evidence that although CSR and firm value, in general, have a positive relationship, the relationship is contingent on the stages of firm's life cycle. The effect of each CSR dimension on firm value differs across life cycle stages. The social dimension of CSR predicts higher firm value at the introduction and mature stages. The governance dimension affects firm value at the growth and shake-out/decline stages. Moreover, the environmental dimension affects firm value only at the later stage of the life cycle.

Research limitations/implications

This study is limited to five countries in Southeast Asia, namely Indonesia, Malaysia, Philippines, Singapore and Thailand from 2012 to 2018. Future studies may explore other countries and investigate the impact of country classification on the relationship between CSR and firm value.

Practical implications

Policymakers, managers and other decision-makers may have a better understanding of firm's behavior in different life cycle stages. With such understanding, CSR will be successfully adopted in decision making, formulation and implementation of policies.

Originality/value

CSR-related research in Southeast Asia remains an under-studied domain, and little attention has been dedicated to different dimensions of CSR and life cycle in the area of CSR-related preference for decision making.

Details

Journal of Applied Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0967-5426

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Article

Tanveer Ahsan, Man Wang and Muhammad Azeem Qureshi

The purpose of this study is to explain the adjustment rate made to target capital structures by listed non-financial firms in Pakistan during the courses of their life

Abstract

Purpose

The purpose of this study is to explain the adjustment rate made to target capital structures by listed non-financial firms in Pakistan during the courses of their life cycles and to determine what factors influence their adjustment rates.

Design/methodology/approach

The study used multivariate analysis to classify 39 years (1972-2010) of unbalanced panel data from listed non-financial Pakistani firms in terms of their growth, maturity and decline stages. Further, it used a fixed-effects panel data model to determine the factors that influence capital structure and adjustment rates during the life-cycle stages of firms.

Findings

The study observed a low–high–low leverage pattern during the growth, maturity and decline stages of businesses in line with tradeoff theory. Furthermore, the study observed an adjustment rate for growing firms of between 49.3-37.9 per cent, for mature firms of between 35.5-17.5 per cent and for declining firms of between 22.2-15.1 per cent toward their respective leverage targets. Furthermore, it was found that growing firms have higher leverage adjustment rates because, by having more investment opportunities, these firms can alter their capital structures easily by changing the composition of their new issues.

Practical implications

Erratic economic conditions in Pakistan have created an uncertain business environment. Therefore, even mature Pakistani firms remain skeptical about the sustainability of positive trends among current economic indicators. Furthermore, to avoid uncertainty, Pakistani firms grab short-term opportunities by using quickly available short-term debt as a main financing source. Government should introduce long-term policies that will stabilize the business environment and strengthen the financial, as well as the judicial, institutions of the country so that these firms may benefit from long-term investment opportunities and access more options for raising external financing. The results of this study will also help policymakers for other Asian economies where the capital markets are underdeveloped and where firms have higher leverage ratios, such as Thailand, Indonesia and Malaysia.

Originality/value

This is the first study in Pakistan that has used a multivariate approach to classify firms into their different life-cycle stages and to discover the leverage adjustment rates of firms during those life-cycle stages.

Details

Journal of Asia Business Studies, vol. 10 no. 3
Type: Research Article
ISSN: 1558-7894

Keywords

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Book part

Petri Suomala

The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance…

Abstract

The essential investments in new product development (NPD) made by industrial companies entail effective management of NPD activities. In this context, performance measurement is one of the means that can be employed in the pursuit of effectiveness.

Details

Managing Product Innovation
Type: Book
ISBN: 978-1-84950-311-2

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Article

David S. Jenkins, Gregory D. Kane and Uma Velury

We investigate the relative roles of key components of earnings change in explaining the value relevance of earnings across different lifecycle stages of the firm. We…

Abstract

We investigate the relative roles of key components of earnings change in explaining the value relevance of earnings across different lifecycle stages of the firm. We hypothesize that firms in different lifecycle 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 lifecycle, the stock market reaction to the success firms have in employing these strategic actions is likely to vary across the lifecycle. 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 lifecycle to a profitability emphasis later in the lifecycle.

Details

Review of Accounting and Finance, vol. 3 no. 4
Type: Research Article
ISSN: 1475-7702

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Article

Thomas O'Connor and Julie Byrne

– The purpose of this paper is to explore the relationship between corporate governance and firm value at different stages of the corporate life-cycle.

Abstract

Purpose

The purpose of this paper is to explore the relationship between corporate governance and firm value at different stages of the corporate life-cycle.

Design/methodology/approach

The authors use two measures, commonly employed in the literature, to differentiate between “immature” and “mature” firms, and estimate separate governance-value regressions for each set of firms.

Findings

The findings suggest that it is differences in the resource/strategic governance functions, which manifest in young firms which result in differences in value across firms, all else equal. The authors find no relationship between governance and firm value for older firms. Hence, differences in the monitoring aspect of governance between mature firms are not rewarded with a value premium.

Research limitations/implications

The findings imply that the strategic and resource roles of governance are “must haves” for firms since firms that score highly on these fronts are valued more highly. In contrast, differences in the monitoring aspect of governance are not rewarded, suggesting that effective monitoring is not a necessity, but rather a “nice to have”. The analysis is limited to a small sample of emerging market firms, and it would be of interest to extend this analysis to a larger and broader sample of firms.

Originality/value

The findings suggest that corporate governance is not valued at all stages of the corporate life-cycle.

Details

Managerial Finance, vol. 41 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

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