The Value Relevance of Financial Performance Indicators: the Life-cycle Theory

<p>This research is focused on the influence of financial performance indicators on the market capitalization with respect to the life-cycle theory. As a result of the review of theoretical and empirical literature on the topic, a significant gap in terms of emerging market samples was identified. Considering this fact, this research was aimed at testing the proposed relationship on the sample of Russian and Chinese companies using the Anthony and Ramesh methodology.</p><p>Empirical results of the study can be summarized as follows. The risk factor of financial leverage proved to be insignificant on all life-cycle stages. All the hypothesis concerning the relevance of cash flows were rejected, except for the relevance of financial cash flows in the decline stage. The profitability of companies proved to be relevant on the mature stage, moreover on the Chinese sample it proved to be significant on all the stages. In contrast with the previous research, the growth proved to be insignificant on the growth stage.Considering the explanational power of the models, is was proved on the maturity stage it&rsquo;s the greatest, which is in line with logic of this work.</p><p>The direction of the future research, which can be summarized as a result of this work, is, firstly, the development of the sample, used in the research and the proposition of the hypothesis, which can possibly explain the variety of results from the precious studies and the emerging markets sample. Moreover, the agency conflict on different stages of the life cycle and the lag in the appreciation of some factors by the market may be a valid field for the future research.</p>