Stages of Firm Life Cycle, Transition, and Dividend Policy
19 Pages Posted: 30 Jun 2019 Last revised: 5 May 2020
Date Written: May 1, 2019
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
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