Unraveling the Bankruptcy RiskReturn Paradox across the Corporate Life Cycle

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F62690094%3A18450%2F20%3A50017029" target="_blank" >RIV/62690094:18450/20:50017029 - isvavai.cz</a>

Alternative codes found

RIV/62690094:18450/20:50017994

Result on the web

<a href="https://www.mdpi.com/2071-1050/12/9/3547" target="_blank" >https://www.mdpi.com/2071-1050/12/9/3547</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.3390/su12093547" target="_blank" >10.3390/su12093547</a>

Result language

angličtina

Original language name

Unraveling the Bankruptcy RiskReturn Paradox across the Corporate Life Cycle

Original language description

Bankruptcy risk is a fundamental factor affecting the financial sustainability and smooth functioning of an enterprise. The corporate bankruptcy riskreturn association is well founded in the literature. However, there is a dearth of empirical research on how this association prevails at different stages of the corporate life cycle. The present study aims to investigate the bankruptcyrisk relationship at different stages of corporate life cycle by employing Hierarchical Linear Mixed Model (HLMM) regression estimation on the data of listed non-financial Pakistani firms from 12 diverse industrial segments. We grouped the firms into introduction, growth, mature, shake-out, and decline stages of the life cycle using Dickinson&apos;s model. Empirical results assert that corporate risk-taking at the introduction stage yields superior financial performance in the future, while risk at the growth stage positively contributes to a firm&apos;s current performance. Moreover, because of risk-averse and non-diversified managerial behavior, bankruptcy risk at the mature stage is negatively associated with both current and future performance. Likewise, risk-taking at the decline stage has significant negative implications for firm performance as the managers of such firms undertake heavy investments in a turnaround attempt; however, owing to the risk-averse behavior, they may indulge in negative net present value (NPV) projects. The study findings imply that managers synchronize a firm&apos;s risk exposure with the corresponding life cycle stage to avoid going bankrupt. Moreover, excessive risk-taking during the mature and decline stages can considerably harm the financial sustainability of an enterprise. Hence, investors should exercise a degree of caution when investing in highly indebted later-stage (mature and decline) firms. Overall, bankruptcy riskreturn resembles an inverted U-shaped relationship. Our results are robust and can apply to various econometric specifications.

Czech name

—

Czech description

—

Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

—

OECD FORD branch

20707 - Ocean engineering

Project

—

Continuities

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year

2020

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

SUSTAINABILITY

ISSN

2071-1050

e-ISSN

—

Volume of the periodical

12

Issue of the periodical within the volume

9

Country of publishing house

CH - SWITZERLAND

Number of pages

19

Pages from-to

"Article Number: 3547"

UT code for WoS article

000537476200046

EID of the result in the Scopus database

2-s2.0-85085065842