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Corporate life cycle and credit scoring

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  • Ala’a Adden Abuhommous

Abstract

This paper examines how the corporate life cycle affects credit scoring. Previous empirical studies have shown that the life cycle has an impact on financial policies, creditworthiness, risk and performance. This study utilizes panel data of U.S. listed companies for the period 1985–2017. The Dickinson model, which divides the life cycle into four stages (introduction, growth, mature, and decline), is used. The Probit model is employed to investigate this relationship. The findings show that firms in the introduction, growth, and maturity stages have a favorable and significant impact on the likelihood of a positive credit rating change (upgrade). Conversely, firms in the decline stage show a negative relationship with credit rating positive upgrades. This suggests that credit rating agencies consider a firm’s life cycle status. Therefore, firms should strive to reach the growth and mature phases in order to benefit from higher credit ratings.

Suggested Citation

  • Ala’a Adden Abuhommous, 2023. "Corporate life cycle and credit scoring," Journal of Applied Economics, Taylor & Francis Journals, vol. 26(1), pages 2255444-225, December.
    • Handle: RePEc:taf:recsxx:v:26:y:2023:i:1:p:2255444
    DOI: 10.1080/15140326.2023.2255444
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