Unraveling the Bankruptcy RiskReturn Paradox across the Corporate Life Cycle

Kód výsledku v 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>

Nalezeny alternativní kódy

RIV/62690094:18450/20:50017994

Výsledek na webu

<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>

Jazyk výsledku

angličtina

Název v původním jazyce

Unraveling the Bankruptcy RiskReturn Paradox across the Corporate Life Cycle

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

Unraveling the Bankruptcy RiskReturn Paradox across the Corporate Life Cycle

Popis výsledku anglicky

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.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

20707 - Ocean engineering

Projekt

—

Návaznosti

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Rok uplatnění

2020

Kód důvěrnosti údajů

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

Název periodika

SUSTAINABILITY

ISSN

2071-1050

e-ISSN

—

Svazek periodika

12

Číslo periodika v rámci svazku

9

Stát vydavatele periodika

CH - Švýcarská konfederace

Počet stran výsledku

19

Strana od-do

"Article Number: 3547"

Kód UT WoS článku

000537476200046

EID výsledku v databázi Scopus

2-s2.0-85085065842