Unraveling the bankruptcy risk-return 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%3A50017994" target="_blank" >RIV/62690094:18450/20:50017994 - isvavai.cz</a>

Nalezeny alternativní kódy

RIV/62690094:18450/20:50017029

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 risk-return 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 risk-return 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 bankruptcy-risk 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 risk-return resembles an inverted U-shaped relationship. Our results are robust and can apply to various econometric specifications. © 2020 by the authors.

Název v anglickém jazyce

Unraveling the bankruptcy risk-return 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 risk-return 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 bankruptcy-risk 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 risk-return resembles an inverted U-shaped relationship. Our results are robust and can apply to various econometric specifications. © 2020 by the authors.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50702 - Urban studies (planning and development)

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