Corporate Life Cycle and Cost of Equity Capital

Karami, Gholamreza; Akhoundi, Omid

doi:10.22054/qjma.2017.7712

Document Type : Research Paper

Authors

Gholamreza karami ¹
Omid Akhoundi ²

¹ Associate Professor ,university of Tehran

² Master Student ,University of Tehran

https://doi.org/10.22054/qjma.2017.7712

Abstract

The main objective of this paper is to evaluate the effect of the corporate life cycle stages on the cost of equity of firms listed on the Tehran Stock Exchange. In this study we used Dickinson's Model (2011) to determine the corporate life cycle stages and Gordon Model to calculate cost of equity. In this study, we first took samples using the cash flow statement data (including cash flow from operating activities, cash flow from investing activities and cash flow from finance activities) and separated the firms in the growth stage, maturity stage and decline stage, then, using multivariate regression analysis and mean comparison tests, hypotheses were studied and tested. The results of 110 firms (990 company - year) from 2006 to 2014 shows that the firms, cost of equity in different stages of the life cycle (growth, maturity, decline) are significantly different. The results also show that in the decline stage the cost of equity is at the highest level and in the maturity stage it is at the lowest level.

Keywords

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Empirical Studies in Financial Accounting

Corporate Life Cycle and Cost of Equity Capital

References

References

Anthony, J.H., Ramesh, K., (1992). Association between accounting performance measures and stock prices. Journal of Accounting and Economics. 15 (2/3), 203–227.

Armstrong, C.S., Core, J.E., Taylor, D.J., Verrecchia, R.E., (2011). When does information asymmetry affect the cost of capital? . Journal of Accounting Research. 49 (1), 1–40.

Banz, R.W., (1981). The relationship between return and market value of common stocks. Journal of Financial Economics. 9 (1), 3–18.

Berger, A.N., Udell, G.F ., (1998). The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle. Journal of Banking & Finance. 22 (6–8), 613–673.

Botosan, C.A ., (2006). Disclosure and the cost of capital: what do we know? . Accounting and Business Research. 36 (Supp1), 31–40.

Volume 13, Issue 52 - Serial Number 52
January 2017
Pages 37-60

Corporate Life Cycle and Cost of Equity Capital

References

References

Anthony, J.H., Ramesh, K., (1992). Association between accounting performance measures and stock prices. Journal of Accounting and Economics. 15 (2/3), 203–227.

Armstrong, C.S., Core, J.E., Taylor, D.J., Verrecchia, R.E., (2011). When does information asymmetry affect the cost of capital? . Journal of Accounting Research. 49 (1), 1–40.

Banz, R.W., (1981). The relationship between return and market value of common stocks. Journal of Financial Economics. 9 (1), 3–18.

Berger, A.N., Udell, G.F ., (1998). The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle. Journal of Banking & Finance. 22 (6–8), 613–673.

Botosan, C.A ., (2006). Disclosure and the cost of capital: what do we know? . Accounting and Business Research. 36 (Supp1), 31–40.

Volume 13, Issue 52 - Serial Number 52January 2017Pages 37-60

Volume 13, Issue 52 - Serial Number 52
January 2017
Pages 37-60