Financial Strategies at Different Life-Cycle Stages of the Company

The finance theory predicts that the evolution of the firm performance is based on the concept of a life cycle, representing the movement of the company from the introduction and growth to the mature and decline stages. It seems quite fair that belonging of the firm to the exact corporate life-cycle stage (LCS) will determine a management`s choice of the financial strategy of a company, which affects its future development and growth opportunities. It should be noted that in this paper we are going to shed some light on such three components of the financial strategy as cash holdings, debt and equity issuance. So, in order to evaluate such unexplored relation between LCS and the financial strategy the Dickenson and MDLA methods were applied on the panel dataset of 1301 public European companies from the developed market for the time period of 11 years (2005-2015). As a result, our analysis revealed that the net equity issuance monotonically declines throughout the movement of the company between different stages. Moreover, we achieve non-monotonic behavior of the net debt issuance: the least amount of debt is usually issued on introduction stage, then there is a slight increase until the mature cycle, after which the net debt issuance systematically declines. In case of cash holdings our research has not revealed any statistically significant correlation with LSC. It should be noted that our results take into account possible econometric problems as heteroscedasticity, autocorrelation and cross-sectional dependence of the errors.