Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan

Ahsan Akbar, Minhas Akbar, Wenjin Tang and Muhammad Azeem Qureshi
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Ahsan Akbar: International Business School, Guangzhou College of South China University of Technology, Guangzhou 510080, China
Minhas Akbar: Department of Management Sciences, COMSATS University Islamabad (Sahiwal Campus), Sahiwal 5700, Pakistan
Wenjin Tang: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China

Sustainability, 2019, vol. 11, issue 3, 1-22

Abstract: In this paper we analyze the relationship between bankruptcy risk and the corporate life cycle in Pakistan from 2005 to 2014. For this purpose, we run a Hierarchical Linear Mixed Model (HLM) for a sample of 301 non-financial listed firms in 12 different sectors. The empirical outcomes reveal that firms during introduction, growth and, decline stages (mature stage) of life-cycle experience higher (lower) bankruptcy risk. Moreover, in juxtaposition with growth stage, bankruptcy risk is higher at the introduction stage of life-cycle. These findings suggest that financial managers should be cautious about the financial fragility of the firm at each stage of corporate life-cycle. The results also entail that Pakistani firms do not follow a sequential pattern in their life-cycle, rather they have the tendency to revert to a previous stage or jump to the next stage of life-cycle. This is the first study that empirically examines the association between firm life-cycle stage and corresponding bankruptcy risk and asserts that managers must incorporate the life-cycle effects into their financial planning and decision making for the sustainable working of an enterprise.

Keywords: Corporate Life-cycle; Bankruptcy Risk; Financial Sustainability; Pakistan (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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