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Does firm life cycle impact corporate risk taking and performance?

Author

Listed:
  • Shahzad, Farrukh
  • Lu, Jing
  • Fareed, Zeeshan

Abstract

This study examines the current and future performance as well as corporate risk taking (CRT) of firms across the different firm life cycle stages. We find CRT is higher during the introduction and decline stages, and lower during the mature and growth stages. Further, we find a negative relation between CRT and both current and future performance during the introduction and decline stages, but a positive relation during the mature and growth stages. We also examine the moderating effects of investor sentiment, idiosyncratic volatility, and cash flow volatility. Results suggest that during periods of higher investor sentiment CRT increases, and firms respond to sentiment differently during life cycle stages. Idiosyncratic volatility (IV) and cash flow volatility (CFV) play vital roles in determining future risk taking and risk aversion at different firm life cycles stages. Results are robust to alternative specifications.

Suggested Citation

  • Shahzad, Farrukh & Lu, Jing & Fareed, Zeeshan, 2019. "Does firm life cycle impact corporate risk taking and performance?," Journal of Multinational Financial Management, Elsevier, vol. 51(C), pages 23-44.
    • Handle: RePEc:eee:mulfin:v:51:y:2019:i:c:p:23-44
    DOI: 10.1016/j.mulfin.2019.05.001
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    Citations

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    Cited by:

    1. Almand, Andrew & Cantrell, Brett & Dickinson, Victoria, 2023. "Accruals and firm life cycle: Improving regulatory earnings management detection," Advances in accounting, Elsevier, vol. 60(C).
    2. Fareed, Zeeshan & Wang, Nianyong & Shahzad, Farrukh & Meran Shah, Syed Ghulam & Iqbal, Najaf & Zulfiqar, Bushra, 2022. "Does good board governance reduce idiosyncratic risk in emerging markets? Evidence from China," Journal of Multinational Financial Management, Elsevier, vol. 65(C).
    3. Wen, Fenghua & Li, Cui & Sha, Han & Shao, Liuguo, 2021. "How does economic policy uncertainty affect corporate risk-taking? Evidence from China," Finance Research Letters, Elsevier, vol. 41(C).
    4. Shakil, Mohammad Hassan, 2021. "Environmental, social and governance performance and financial risk: Moderating role of ESG controversies and board gender diversity," Resources Policy, Elsevier, vol. 72(C).
    5. Kanno, Masayasu, 2023. "Does ESG performance improve firm creditworthiness?," Finance Research Letters, Elsevier, vol. 55(PA).
    6. Wang, Yawei & Kang, Qi & Zhou, Shoujiang & Dong, Yuanyuan & Liu, Junqi, 2022. "The impact of service robots in retail: Exploring the effect of novelty priming on consumer behavior," Journal of Retailing and Consumer Services, Elsevier, vol. 68(C).
    7. Lin, Boqiang & Wu, Nan, 2022. "Will the China's carbon emissions market increase the risk-taking of its enterprises?," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 413-434.
    8. Farrukh Shahzad & Zeeshan Fareed & Bushra Zulfiqar & Umme Habiba & Muhammad Ikram, 2019. "Does abnormal lending behavior increase bank riskiness? Evidence from Turkey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-15, December.
    9. Wu, Xiaojuan & Dluhošová, Dana & Zmeškal, Zdeněk, 2023. "The moderating role of a corporate life cycle with the impact of economic value-added on corporate social responsibility: Evidence from China's listed companies," Emerging Markets Review, Elsevier, vol. 55(C).
    10. Rui Li & Yongmei Cui & Yajun Zheng, 2021. "The Impact of Corporate Strategy on Enterprise Innovation Based on the Mediating Effect of Corporate Risk-Taking," Sustainability, MDPI, vol. 13(3), pages 1-17, January.
    11. Shahzad, Farrukh & Ahmad, Munir & Fareed, Zeeshan & Wang, Zhenkun, 2022. "Innovation decisions through firm life cycle: A new evidence from emerging markets," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 51-67.

    More about this item

    Keywords

    Corporate risk taking; Firm life cycle; Idiosyncratic volatility; Cash flow volatility; Investor sentiment; Performance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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