Innovation decisions through firm life cycle: A new evidence from emerging markets

Farrukh Shahzad, Munir Ahmad, Zeeshan Fareed and Zhenkun Wang

International Review of Economics & Finance, 2022, vol. 78, issue C, 51-67

Abstract: This paper empirically evaluates how different firm life cycle stages influence managers while making firms' input and output innovation decisions under asset liquidity constraints, idiosyncratic risk, and cash flow risk. We find that firms make more investments in input innovation activities during the introduction, growth, and decline stages in the presence of more asset liquidity; in contrast, less investment is made during the mature stage. Concerning the output innovation, the introduction and decline (growth and mature) stages show a negative (positive) relationship for more asset liquidity in place. Our findings also predict that firms are more likely to invest in input innovation activities during the introduction, growth, and decline stages under more idiosyncratic and cash flow volatilities; however, such investment is less prospective during the mature stage. Both volatilities support reciprocal linkages for firm output innovation. Aside from moderating effects, the firms' asset liquidity positively affects output innovation opportunities during current and future periods, while idiosyncratic and cash flow volatilities negatively contribute to both firms' input and output innovation. These findings not only assist managers in making firms' innovation decisions but also enhance investors' understanding of making investment decisions through the different firm life cycle stages.

Keywords: Firm innovation; Firm life cycle; Asset liquidity; Idiosyncratic risk; Cash flow risk (search for similar items in EconPapers)
JEL-codes: D21 G12 G30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:78:y:2022:i:c:p:51-67

DOI: 10.1016/j.iref.2021.11.009

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