The Relationship between Capital Investment Choice and Capital Productivity: A Test of Firm Life Cycle Theory (A Comparative Investigation of Cyclical and Non-Cyclical Companies)

Document Type : Research Paper


1 Department of Accounting, Aliabad Katoul branch, Islamic Azad University, Aliabad Katoul, Iran

2 Department of Accounting, Aliabad Katoul Branch, Islamic Azad University, Ali Abad Katoul, Iran.


According to the firm life cycle theory, companies go through certain behavioral patterns in various stages of their life. A thorough understanding and recognition of these behavioral patterns, new investment in assets and the optimal use of assets can considerably enhance the capital productivity. In the current study, the relationship between the stages of firm life cycle and capital productivity and mediation relationship of the capital investment choice in the two groups of companies have been examined, and methodically compared and contrasted. To examine the research hypothesis, the data were gathered from 118 companies accepted in Tehran Stock Exchange during a period of 7 years. Findings of the research clearly indicated that there is a positive relationship between introduction, growth and maturity stages with capital productivity in the cyclical and non-cyclical companies. Regarding the cyclical companies, a positive relationship was witnessed between the decline stage and capital productivity. Such a relation, however, was not found between the two variables in non-cyclical companies. Also, no significant relationship was observed among the stages of introduction, growth, maturity and the capital investment choice in both groups of companies. In non-cyclical companies, the relationship between the decline stage and the capital investment choice was positive, while there was no relationship between cyclical companies. Capital investment choice also failed to prove the assumed mediating role.


Main Subjects

[1] Adizes, I., Corporate  Life cycles: How and Why Corporations Grow and Die and What to Do about it. Prentice Hall, Englewood Cliffs, 1989, P. 5-136. 
[2] Agah, M., Malekpoorb, H., Investigating the Effect of Financial Constraints and Different Levels of Agency Cost on Investment Efficiency, Advances in Mathematical Finance and Applications, 2017,  2( 4), P. 31-47. (In Persian) DOI: 10.22034/amfa.2017.536264
[3] Anthony, J., Ramesh, K., Association between Accounting, Performance Measures and Stock Prices: A Test of the Life Cycle Hypothesis. Journal of Accounting & Economics. 1992, 15, P. 203-227.
[4] Badurdeen, F., Aydin, R., A multiple lifecycle-based approach to sustainable product configuration design. Journal of Cleaner Production, 2018, 200,P. 756-769.
[5] Boel, B. The European Productivity Agency and Transatlantic Relations 1953-1961. Museum Tusculanum Press. 2003 , 4.  DOI. 10.26530/OAPEN_342371
[6] Brown, D., Rowe, B., The productivity premium in equity returns. University of   Wisconsin US. 2007.
[7] Chuang, K.S., Corporate  life cycle, investment banks and shareholder wealth in M&As. The Quarterly Review of Economics and Finance, 2017, 63, P. 122-134.
[8] Collins, D. W., Hribar, P., Cross sectional variation in cash flow asymmetric timeliness and its effect on the earnings-based measure of conditional conservatism. University of Iowa. 2012.
[9] Davis, E. P., Madsen ,J. B., Productivity and equity market fundamentals: 80 years of evidence for 11 OECD countries. Journal of International Money and Finance2008, 27(8), P. 1261-1283.
[10] DeAngelo, H., DeAngelo, L., Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. Journal of Financial economics 2006,  81(2), P. 227-254.
[11] Dickinson, V., Cash flow patterns as a proxy for firm life cycle. The Accounting Review .2011,86(6), P.1969-1994.
[12] Fama, E. F., French. K. R., Business conditions and expected returns on stocks and bonds. Journal of Financial economics, 1989, 25(1), P. 23-49.
[13] Francis, J. R., Huang, S., Does corporate transparency contribute to efficient resource allocation? Journal of Accounting Research .2009, 47(4), P. 943-989.
[14] Hasan, M. M., Organization capital and firm life cycle. Journal of Corporate Finance .2018, 48, P. 556-578.
[15] Hasan, M. M., Hossain, M., Corporate life cycle and cost of equity capital. Journal of Contemporary Accounting & Economics, 2015. 11(1), P. 46-60.
[16] Jaafar, H., Halim H. A., Refining the firm life cycle classification method: A firm value perspective. Journal of Economics, Business, and Management, 2016, 4(2).
[17] Kato, T., Morishima. M., The productivity effects of participatory employment practices: Evidence from new Japanese panel data, Industrial Relations: A Journal of Economy and Society, 2002,41(4), P. 487-520.
[18] Mardani, M., Sarlak, A., The Effect of Investment on the Financing of Listed Companies in Tehran Stock Exchange, Advances in Mathematical Finance and Applications, 2018, 3(1), P.79-89. (In Persian)  DOI:10.22034/amfa.2018.539136
[19] Miller, D., Friesen, P. H., A longitudinal study of the corporate life cycle. Management science ,1984,30(10), P.1161-1183.
[20] Novotný. F, Podpiera. F., The profitability life-cycle of direct investment: An international panel study. Economic Change and Restructuring ,2008, 41(2), P. 143–153.
[21] Park, Y., Chen. K. H., The effect of accounting conservatism and life-cycle stages on firm valuation. Journal of Applied Business Research, 2006, 22(3), P.75-92.
[22] Phung, D. N., Mishra. A. V., Ownership structure and firm performance: Evidence from Vietnamese listed firms. Australian Economic Papers 2016,55(1), P.63-98.
[23] Quinn, R. E., Cameron. K., Organizational life cycles and shifting criteria of effectiveness: Some preliminary evidence. Management science 1983,29(1), P.33-51.
[24] Tavasoli, A., Saeidi, P., According to Agency Theory and Neoclassical Theory; New Ownership and Diversity of Public Sector Companies in Corporate Life Cycle. Advances in Mathematical Finance and Applications, 2018,3(1), P.1-16. (In Persian) DOI: 10.22034/amfa.2018.539131                                                 
[25] V. Kousenidis, D., Earnings–returns relation in Greece: some evidence on the size effect and on the life-cycle hypothesis.  Managerial Finance.  Technological Educational Institution of Thessa loniki.  2005,31(2), P. 24-54.
[26] Xu, B., Life cycle effect on the value relevance of common risk factors. Review of Accounting and Finance 2007,6(2), P. 162-175.
[27] Yilmazkuday, H., Productivity Cycles in Public and Private Manufacturing Sectors: Evidence from Turkey.International Journal of Applied Economics, 2009, 6(2), P. 21-40
[28] Zhai, J., Wang Y., Accounting information quality, governance efficiency and capital investment choice. China Journal of Accounting Research .2016,9(4), P. 251-266.