Stages of Firm Life Cycle, Transition, and Dividend Policy

19 Pages Posted: 30 Jun 2019 Last revised: 5 May 2020

See all articles by Debarati Bhattacharya

Debarati Bhattacharya

Duquesne University

Chia-Wen Chang

J&J Investment

Wei-Hsien Li

National Central University at Taiwan - Department of Finance

Date Written: May 1, 2019

Abstract

This paper provides evidence of the ability of a cash flow-based life cycle proxy, developed by Dickinson (2011), to explain the propensity of firms to pay dividends, which can vastly improve our understanding of the life cycle effect. Our results show that the propensity to pay manifests a nonlinear relation with the five stages of a firm’s life cycle, and that the commonly used life cycle proxy RE/TE cannot reconcile important features of the data. The cash flow-based proxy also captures theoretically consistent changes in payout policy when a firm transitions from one life cycle stage to another.

Keywords: Corporate Life cycle, Dividend, Payout

JEL Classification: G35, G32

Suggested Citation

Bhattacharya, Debarati and Chang, Chia-Wen and Li, Wei-Hsien, Stages of Firm Life Cycle, Transition, and Dividend Policy (May 1, 2019). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3412238

Debarati Bhattacharya (Contact Author)

Duquesne University ( email )

600 Forbes Ave.
Pittsburgh, PA 15282
United States
412.396.2621 (Phone)

HOME PAGE: http://www.duq.edu/academics/schools/business/faculty/bhattacharya-phd-debarati

Chia-Wen Chang

J&J Investment ( email )

3F., No. 159, Xing-Ai Rd., Neihu District
Taipei
Taiwan

Wei-Hsien Li

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jung-da Rd.
Jung-Li
Taoyuan
Taiwan

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