Firm Life Cycle and Stock Price Crash Risk

52 Pages Posted: 7 Jan 2016 Last revised: 23 Apr 2016

See all articles by Lars Hamers

Lars Hamers

Maastricht University

Annelies Renders

Maastricht University

Patrick Vorst

Maastricht University School of Business and Economics

Date Written: April 2016

Abstract

This study examines the relation between firm life cycle and stock price crash risk. Consistent with the argumentation that heterogeneity in investor beliefs about firm fundamental values is highest during the introduction and growth stage, we find that crash risk peaks in these stages. Furthermore, this relation is stronger for firms without short interest, firms deriving more value from future growth opportunities and high performing growth firms. These findings provide additional support for the “heterogeneity in investor beliefs” hypothesis. We contribute to existing literature by incorporating an inherent yet dynamic firm characteristic, life cycle, into the crash risk prediction model.

Keywords: Crash Risk, Firm Life Cycle, Heterogeneity in Investor Beliefs, Valuation Uncertainty

Suggested Citation

Hamers, Lars and Renders, Annelies and Vorst, Patrick, Firm Life Cycle and Stock Price Crash Risk (April 2016). Available at SSRN: https://ssrn.com/abstract=2711170 or http://dx.doi.org/10.2139/ssrn.2711170

Lars Hamers (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Annelies Renders

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Patrick Vorst

Maastricht University School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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