Product Life Cycles in Corporate Finance

Review of Financial Studies Forthcoming 2022

92 Pages Posted: 1 Jun 2018 Last revised: 30 Nov 2021

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: November 1, 2021

Abstract

We develop a novel 10-K text-based model of product life cycles and examine firm investment policies. Conditioning on the life cycle substantially improves the power of Q to explain investment, and reveals a natural ordering of investments over the life cycle. While R&D and CAPX sensitivity are high early in the cycle, acquisitions arise as firms mature, and divestitures and product extension investments arise as firms decline. Q sensitivities that condition on the life cycle can vary by as much as 400% from traditional sensitivities. The life cycle framework further reveals an enriched relationship between competition, investment and corporate profits.

Keywords: product life cycles, corporate investment, mergers, acquisitions, divestitures, tobins Q, text analysis

JEL Classification: G30, G31, G34, L10, L21

Suggested Citation

Hoberg, Gerard and Maksimovic, Vojislav, Product Life Cycles in Corporate Finance (November 1, 2021). Review of Financial Studies Forthcoming 2022, Available at SSRN: https://ssrn.com/abstract=3182158 or http://dx.doi.org/10.2139/ssrn.3182158

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://faculty.marshall.usc.edu/Gerard-Hoberg/

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://scholar.rhsmith.umd.edu/vmax/home

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