The Relationship between Companie's Life Cycle and the Stock Price Crash Risk

Document Type : Research Paper

Authors

1 Associate Professor of Accounting, Faculty of Economics and Accounting, Azad University, Central Tehran Branch

2 Graduate Student of Accounting, Hafez Higher Education Non-Profit Institute, Shiraz, Corresponding Author

3 Master of Accounting, Islamic Azad University, Shiraz Branch

Abstract

Life cycle of company indicates the evolution of an organization that company faces with it because of strategy selection and competitive pressures. Stock price crash risk is an important and unusual negative change in stock price that there is in stock market and occurs without occurrence of economic event. The study aimed to investigate the relationship between companies' life cycle and the risk of stock price crash risk. The model of Dickinson cash flows was used for measuring the life cycle and 4 factors of included negative skewness of stock return, maximalist Sigma, low to high volatility and the period of stock price crash were used for assessing the crash risk of stock price. The study was conducted during 2005 to 2014 and the selected sample included 71 companies. The ordinary least squares regression method was applied for testing the research hypotheses. The results showed that after controlling the financial leverage, companies' size, the ratio of market value to book value of equity and return on equity, there was a positive and significant relationship between growth stages, decline and the risk of stock price crash risk. Moreover, there was a negatively significant relationship between the maturity stage and the stock price crash risk. Considering the importance of different strategies at different stages of company's life cycle, it is necessary for managers to achieve better results, plan tailored to the stage of their life cycle in which to implement. 

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References

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History

  • Receive Date: 17 May 2016
  • Revise Date: 29 August 2016
  • Accept Date: 19 September 2016

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