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

Author

Listed:
  • Ahsan Akbar

    (International Business School, Guangzhou College of South China University of Technology, Guangzhou 510080, China)

  • Minhas Akbar

    (Department of Management Sciences, COMSATS University Islamabad (Sahiwal Campus), Sahiwal 5700, Pakistan)

  • Wenjin Tang

    (School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China)

  • Muhammad Azeem Qureshi

    (Oslo Business School, Oslo Metropolitan University, 0130 Oslo, Norway)

Abstract

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.

Suggested Citation

  • Ahsan Akbar & Minhas Akbar & Wenjin Tang & Muhammad Azeem Qureshi, 2019. "Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan," Sustainability, MDPI, vol. 11(3), pages 1-22, January.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:3:p:678-:d:201358
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