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Stages of firm life cycle, transition, and dividend policy

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  • Bhattacharya, Debarati
  • Chang, Chia-Wen
  • Li, Wei-Hsien

Abstract

This paper provides evidence of the ability of a cash flow-based life cycle proxy, developed by Dickinson (2011), to explain the propensity of firms to pay dividends, which can vastly improve our understanding of the life cycle effect. Our results show that the propensity to pay manifests a nonlinear relation with the five stages of a firm's life cycle, and that the commonly used life cycle proxy RE/TE cannot reconcile important features of the data. The cash flow-based proxy also captures theoretically consistent changes in payout policy when a firm transitions from one life cycle stage to another.

Suggested Citation

  • Bhattacharya, Debarati & Chang, Chia-Wen & Li, Wei-Hsien, 2020. "Stages of firm life cycle, transition, and dividend policy," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612318306664
    DOI: 10.1016/j.frl.2019.06.024
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    Cited by:

    1. Benjamin Amoah, 2024. "The story of dividend payment and corporate cash flow in Ghana," African Development Review, African Development Bank, vol. 36(1), pages 30-40, March.
    2. Barros, Victor & Guedes, Maria João & Santos, Pedro & Sarmento, Joaquim Miranda, 2022. "Does CEO turnover influence dividend policy?," Finance Research Letters, Elsevier, vol. 44(C).
    3. Bikki Jaggi & Alessandra Allini & Raffaela Casciello & Fiorenza Meucci, 2022. "Firm life cycle stages and earnings management," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1019-1049, October.
    4. Anagnostopoulos, Alexis & Atesagaoglu, Orhan Erem, 2023. "Shareholder tax cuts with household and firm heterogeneity," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Corporate life cycle; Dividend; Payout policy;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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