The effect of life cycle stages on capital expenditures: evidence from an emerging market

Abstract

PurposeThe purpose of the article is to examine the effect of life cycle stages on capital expenditures, using Borsa Istanbul-listed companies.Design/methodology/approachThe panel data estimation procedure was used as the primary method to test the hypothesis. The authors used four additional analyses to check the robustness of the results. The model was tested for endogeneity using the generalized method of moments (GMM) estimation. Quantile regression was utilized for the non-parametric test of the model. In the third robustness test, the sample was divided into two using financial constraints with the Size-Age (SA) Index proposed by Hadlock and Pierce (2010). The last analysis removed the global financial crisis (GFC) years from the sample.FindingsBorsa Istanbul-listed companies tend to invest less as they move forward in their life cycle stages. The results show that market capitalization, operating cash flow levels and leverage positively affect capital expenditure investments. The empirical evidence also revealed that cash holding levels have a negative effect on capital expenditure decisions. Robustness tests support the results.Practical implications The findings are potentially useful for investors and managers. Having the information that decreasing capital expenditures signals that the company is in the last stages of its life would be a sign for managers to improve their investment strategies to avoid getting out of business and survive. They need to find options and solutions to propel their companies back on a path of growth. Additionally, the same information could be vital for investors' investment decisions.Originality/valueThis paper contributes to the literature by providing evidence about the effect of life cycle stages on capital expenditures from an emerging market. To the best of the authors’ knowledge, it is the first paper to investigate empirically how moving forward in the life cycle stages affects capital expenditures in an emerging market.

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“…Furthermore, there is no agreement on the exact number of stages and the organizational tasks that characterize each stage. Studies (Can et al, 2023) have challenged this viewpoint, claiming that organizations do not always undergo such an inevitable transition from one stage to another. However, knowing a company's life cycle is critical for the comprehension of its financial performance throughout time.…”

“…Extant literature suggests that a firm's financial performance is a function of its age, and this relationship is supported by the firm life-cycle theory (Can et al, 2023). According to this theory, like products, organizations go through four life-cycle stages: start-up, growth, maturity, and stagnation, and each stage has distinctive characteristics that affect their financial performance (Ryu & Won, 2022).…”

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