Product Life Cycles in Corporate Finance

82 Pages Posted: 1 Jun 2018 Last revised: 12 Feb 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: February 11, 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. Resulting Q sensitivities are remarkably heterogeneous over the cycle, and are even negative in some cases. These life cycle effects are economically larger than those attributable to competition, and are stronger in recent years.

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

JEL Classification: E22, G31, G34, M41

Suggested Citation

Hoberg, Gerard and Maksimovic, Vojislav, Product Life Cycles in Corporate Finance (February 11, 2021). 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://www-bcf.usc.edu/~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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