Do Corporate Policies Follow a Life-Cycle?

42 Pages Posted: 26 May 2015 Last revised: 19 Apr 2016

See all articles by Robert W. Faff

Robert W. Faff

University of Queensland

Wing Chun Kwok

The Hang Seng University of Hong Kong

Edward Podolski

Deakin University; Financial Research Network (FIRN)

George Wong

Hong Kong Polytechnic University

Date Written: April 16, 2016

Abstract

We examine whether corporate investment, financing, and cash policies are interdependent and follow a predictable pattern in line with the firm life-cycle. We find that investments and equity issuance decrease with firm life-cycle, while debt issuance and cash holdings increase in the introduction and growth stages and decrease in the mature and shake-out/decline stages of the firm’s life-cycle. These results are robust after using various proxies for life-cycle and controlling for firm, CEO and board level characteristics. Collectively, our results show that corporate policies follow a firm life-cycle.

Keywords: Life-cycle theory; Investment decisions; Financing decisions; Cash policy; Payout policy

JEL Classification: G30, G31, G32, G35

Suggested Citation

Faff, Robert W. and Kwok, Kaz and Podolski, Edward and Wong, George, Do Corporate Policies Follow a Life-Cycle? (April 16, 2016). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2610483 or http://dx.doi.org/10.2139/ssrn.2610483

Robert W. Faff

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Kaz Kwok

The Hang Seng University of Hong Kong ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China

Edward Podolski (Contact Author)

Deakin University ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

George Wong

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

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