Life cycle stages and corporate decisions

The study contributes by presenting a scenario of investment, financing, dividend, and cash decisions, revealing patterns and characteristics of the evolution of Brazilian firms throughout their life cycle stages. For this, we tested an alternative life cycle proxy capable of classifying firms in different stages, even shake-out and decline, not defined by the model of Dickinson (2011)Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. [Forthcoming version]. The Accounting Review. https://ssrn.com/abstract=755804
https://ssrn.com/abstract=755804... , and applied a more robust methodology (GMM-SYS) considering potential endogeneity problems disregarded by previous studies.

Design/methodology/approach:

The sample consists of 203 traded firms listed on B3 from 2010 to 2018. We collected the data from the Thomson Reuters Eikon database. We estimated the parameters of the models by GMM-SYS (Generalized Method of Moments) to mitigate problems of endogeneity, omitted variables, and heterogeneity.

Findings:

As our main results, we have that Brazilian firms do not follow a pattern and oscillate between stages and that there is strong evidence of the effect of the life cycle on corporate decisions. In the introduction and growth stages, firms invest more, have more debt, pay fewer dividends, and have greater cash availability. In the mature stage, investments, debts, and the level of cash are lower. In the shake-out stage, no results were significant, requiring further studies to better explore this stage in developing countries, such as Brazil.

Keywords
life cycle; investment decisions; financing decisions; dividend decisions; cash decisions

Variable	Expected sign				Theoretical basis
Variable	I.	F.	D.	C.	Theoretical basis
I (introduction)	+	+	-	+	Anthony and Ramesh (1992)Anthony, J. H., & Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2/3), 203-227. https://doi.org/10.1016/0165-4101(92)90018-W https://doi.org/10.1016/0165-4101(92)900... , Bulan and Yan (2010)Bulan, L., & Yan, Z. (2010). Firm maturity and the pecking order theory. Working paper, Brandeis University and New Jersey Institute of Technology. https://dx.doi.org/10.2139/ssrn.1760505 https://dx.doi.org/10.2139/ssrn.1760505... , Dickinson (2011)Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. [Forthcoming version]. The Accounting Review. https://ssrn.com/abstract=755804 https://ssrn.com/abstract=755804... , Faff et al. (2016)Faff, R., Kwok, W. C., Podolski, E. J., & Wong, G. (2016). Do corporate policies follow a life-cycle? Journal of Banking & Finance, 69, 95-107. https://doi.org/10.1016/j.jbankfin.2016.04.009 https://doi.org/10.1016/j.jbankfin.2016.... , and Victor et al. (2018)Victor, F. G., Carpio, G. B., & Vendruscolo, M. I. (2018). Ciclo de vida das companhias abertas brasileiras como determinante de sua estrutura de capital. Revista Universo Contábil, 14(1), 50-71. http://dx.doi.org/10.4270/RUC.2018103 http://dx.doi.org/10.4270/RUC.2018103... .
G (growth)	+	+	-	+	Anthony and Ramesh (1992)Anthony, J. H., & Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2/3), 203-227. https://doi.org/10.1016/0165-4101(92)90018-W https://doi.org/10.1016/0165-4101(92)900... , DeAngelo et al. (2006)DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial Economics, 81(2), 227-254. https://doi.org/10.1016/j.jfineco.2005.07.005 https://doi.org/10.1016/j.jfineco.2005.0... , Bulan and Yan (2010)Bulan, L., & Yan, Z. (2010). Firm maturity and the pecking order theory. Working paper, Brandeis University and New Jersey Institute of Technology. https://dx.doi.org/10.2139/ssrn.1760505 https://dx.doi.org/10.2139/ssrn.1760505... , Dickinson (2011)Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. [Forthcoming version]. The Accounting Review. https://ssrn.com/abstract=755804 https://ssrn.com/abstract=755804... , Faff et al. (2016)Faff, R., Kwok, W. C., Podolski, E. J., & Wong, G. (2016). Do corporate policies follow a life-cycle? Journal of Banking & Finance, 69, 95-107. https://doi.org/10.1016/j.jbankfin.2016.04.009 https://doi.org/10.1016/j.jbankfin.2016.... , and Victor et al. (2018)Victor, F. G., Carpio, G. B., & Vendruscolo, M. I. (2018). Ciclo de vida das companhias abertas brasileiras como determinante de sua estrutura de capital. Revista Universo Contábil, 14(1), 50-71. http://dx.doi.org/10.4270/RUC.2018103 http://dx.doi.org/10.4270/RUC.2018103... .
M (maturity)	-	-	+	-	Anthony and Ramesh (1992)Anthony, J. H., & Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2/3), 203-227. https://doi.org/10.1016/0165-4101(92)90018-W https://doi.org/10.1016/0165-4101(92)900... , DeAngelo et al. (2006)DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial Economics, 81(2), 227-254. https://doi.org/10.1016/j.jfineco.2005.07.005 https://doi.org/10.1016/j.jfineco.2005.0... , Bulan and Yan (2010)Bulan, L., & Yan, Z. (2010). Firm maturity and the pecking order theory. Working paper, Brandeis University and New Jersey Institute of Technology. https://dx.doi.org/10.2139/ssrn.1760505 https://dx.doi.org/10.2139/ssrn.1760505... , Dickinson (2011)Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. [Forthcoming version]. The Accounting Review. https://ssrn.com/abstract=755804 https://ssrn.com/abstract=755804... , Faff et al. (2016)Faff, R., Kwok, W. C., Podolski, E. J., & Wong, G. (2016). Do corporate policies follow a life-cycle? Journal of Banking & Finance, 69, 95-107. https://doi.org/10.1016/j.jbankfin.2016.04.009 https://doi.org/10.1016/j.jbankfin.2016.... , and Victor et al. (2018)Victor, F. G., Carpio, G. B., & Vendruscolo, M. I. (2018). Ciclo de vida das companhias abertas brasileiras como determinante de sua estrutura de capital. Revista Universo Contábil, 14(1), 50-71. http://dx.doi.org/10.4270/RUC.2018103 http://dx.doi.org/10.4270/RUC.2018103... .
S/D (shake-out/decline)	-	-	-	-	Anthony and Ramesh (1992)Anthony, J. H., & Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2/3), 203-227. https://doi.org/10.1016/0165-4101(92)90018-W https://doi.org/10.1016/0165-4101(92)900... , Dickinson (2011)Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. [Forthcoming version]. The Accounting Review. https://ssrn.com/abstract=755804 https://ssrn.com/abstract=755804... , and Faff et al. (2016)Faff, R., Kwok, W. C., Podolski, E. J., & Wong, G. (2016). Do corporate policies follow a life-cycle? Journal of Banking & Finance, 69, 95-107. https://doi.org/10.1016/j.jbankfin.2016.04.009 https://doi.org/10.1016/j.jbankfin.2016.... .

	DCS (A)	%	FAFF (B)	%	(B - A)	%
Introduction	166	10.6%	164	10.4%	-2	-1.2%
Growth	386	24.6%	437	27.9%	51	11.7%
Maturity	716	45.7%	780	49.8%	64	8.2%
Shake-out/decline	298	19.0%	185	11.8%	-113	-61.1%
Total	1566	100%	1566	100%

		Introduction	Growth	Maturity	Shake-out/decline
		2017
Introduction	2018	25.00%	16.00%	17.24%	13.64%
Growth		25.00%	30.00%	11.21%	18.18%
Maturity		50.00%	54.00%	71.55%	40.91%
Shake-out/decline		0.00%	0.00%	0.00%	27.27%
		100.00%	100.00%	100.00%	100.00%

Introduction	Growth	Maturity	Shake-out/decline
Embraer	Companhia B. de Distribuição	Petrobras	Minupar Participações
Iochpe Maxion	Suzano Holding	Vale	Nordon Ind. Metalurgicas
Magazine Luiza	Suzano	JBS	CCX Colombia
RaiaDrogasil	Kroton Educacional	Telefônica Brasil	Hercules
Dasa	Marfrig Global Foods	Ambev	Advanced Digital H. M. Preventiva

Dependent variables	Introduction			Growth			Maturity			Shake-out/decline
Dependent variables	Mean	S.D.	N	Mean	S.D.	N	Mean	S.D.	N	Mean	S.D.	N
Investment	0.056	0.648	133	0.068	0.066	377	0.046	0.039	710	0.034	0.049	129
Debt	0.371	0.676	131	0.324	0.453	382	0.225	0.318	678	0.346	0.765	137
Cash	0.107	0.145	156	0.103	0.114	428	0.085	0.091	767	0.053	0.103	175
Dividends	0.021	0.034	59	0.025	0.037	250	0.039	0.046	497	0.016	0.021	47

Variables	Investment	Debt	Dividends	Cash
DC_it-1	0.539^***	0.188^**	0.427^***	0.373^***
Introduction	0.218^***	0.212^**	-0.437^**	0.010
Growth	0.188^***	0.322^***	-0.634^***	0.011^**
Shake-out	-0.095	-0.094	-0.414	0.005
Size	0.028	0.152^***	-0.061^*	0.005^***
Operating cashflow	2.589^***	0.286	2.666^***	0.105^***
Availability	-0.020	0.591	1.031
Opportunity	0.079^*	-0.181^**
Tangibility	0.456^**			-0.023^*
Growth	0.584^***	0.048	1.770^***	0.063^***
Leverage	0.018	1.806^***	-1.169^**	0.002
MB		0.022
Working capital		0.827^**
Constant	-2.914^***	-3.103^***	-1.043	-0.089^***
Year	Yes	Yes	Yes	Yes
Observations	990	1038	616	1187
Groups	165	172	121	187
Instruments	31	33	47	47
AR (1) p-value	0.000	0.000	0.001	0.010
AR (2) p-value	0.247	0.356	0.059	0.153
Hansen J Test p-value	0.382	0.111	0.172	0.179
Difference-in-Hansen:
Excluding Group	0.502	0.081	0.097	0.251
Difference (null H = exogenous)	0.109	0.912	0.711	0.188
Wald Chi-Squared Test	21578.07	2286.11	7062.26	525.92
Wald Test p-value	0.000	0.000	0.000	0.000

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E-mail: revista.adm@mackenzie.br

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[1] Marcelly Nóbrega de Medeiros is now an assistant professor at the Business Department of Potiguar University; Márcio André Veras Machado is now an associate professor at the Management Department of Federal University of Paraíba.