The Determinants of the Life Cycle Stages of Brazilian Public Companies: A Study Based on Financial-Accounting Variables

Costa, Wando Belffi da; Macedo, Marcelo Alvaro da Silva; Yokoyama, Karen Yukari; Almeida, José Elias Feres de

doi:10.15728/bbr.2017.14.3.3

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Articles • BBR, Braz. Bus. Rev. 14 (03) • May-Jun 2017 • https://doi.org/10.15728/bbr.2017.14.3.3 copy

The Determinants of the Life Cycle Stages of Brazilian Public Companies: A Study Based on Financial-Accounting Variables

Authorship SCIMAGO INSTITUTIONS RANKINGS

ABSTRACT

This paper analyses the relation between firms' life cycles stages according to Dickinson's (2011)DICKINSON, V. Cash Flow Patterns as a Proxy for Firm Life Cycle. The Accounting Review, v. 86, n. 6, p. 1969-1994, 2011. definition and accounting and financial ratios. We applied multinomial logistic regression analysis on a sample of 1,515 observations of public companies listed on BM&FBOVESPA between 2005 and 2012. Based on the literature about firms' life cycle stages (YAN; ZHAO, 2010YAN, Z; ZHAO, Y. A New Methodology of Measuring Corporate Life-cycle Stages. International Journal of Economic Perspectives, v. 4, n. 4, 2010.; MILLER; FRIESEN, 1984MILLER, D., FRIESEN, P. "A Longitudinal Study of the Corporate Life Cycle", Management Science, v. 30, n. 10, p. 1161-1183, 1984.; FAMA; FRENCH, 2001FAMA, E., FRENCH, K. "Disappearing dividends: changing firm characteristics or lower propensity to pay?". Journal of Financial Economics, v. 60, p. 3-43, 2001.) the accounting and financial ratios used were dividends distribution, leverage, market-to-book, return on equity, firm size and revenue growth. The results show that leverage, dividends distribution, market-to-book, return on equity, firm size and revenue growth could be used as explanatory factors to classify firms' life cycle stages.

Keywords:
Life cycle; Accounting ratios; Finance; Brazilian public companies; Capital market

Panel A – Total of companies
Total of companies	896
(-)Financial and funds sectors	(79)
(-)Companies with null sector on Economática	(163)
(-)Companies with incomplete data	(341)
(=)Total of companies in the sample	313
Panel B: Processing of data for use in model
Raw information	87.808
(-)Empty cells	69.384
(-)Outliers and observations above or below three standard deviations	(1.759)
(=)Total of observations for the model	16.665
Observations per variable (16.665 observations / 11 variables )	1.515

Cash Flow	Composition of signals for Classifying Life Cycle Stages
Operating (OCF)	-	+	+	+	-	+	-	-
Investing (ICF)	-	-	-	+	-	+	+	+
Financing (FCF)	+	+	-	+	-	-	+	-
Life Cycle:	Birth	Growth	Maturity	Shake-out			Decline

Life cycle stage	Nº observations	%
Introduction	50	3%
Growth	660	44%
Mature	659	43%
Shake-out	118	8%
Decline	28	2%
Total	1515	100%

Base Stage	Observations at the initial stage	Intended Stage					No intended stage	Total
Base Stage	Observations at the initial stage	Introduction	Growth	Mature	Shake-out	Decline	No intended stage	Total
Introduction	37	8	15	6	5	3	13	50
Introduction	74%	22%	41%	16%	14%	8%	26%	100%
Growth	523	11	288	189	31	4	137	660
Growth	79%	2%	55%	36%	6%	1%	21%	100%
Mature	508	6	154	317	29	2	151	659
Mature	77%	1%	30%	62%	6%	0%	23%	100%
Shake-out	86	4	24	24	25	9	32	118
Shake-out	73%	5%	28%	28%	29%	10%	27%	100%
Decline	14	1	1	4	3	5	14	28
Decline	50%	7%	7%	29%	21%	36%	50%	100%
Total	1168	30	482	540	93	23	347	1,515

Variable		Betas	Introduction	Growth	Shake-out	Decline
Dividends	DIV	β1	-	-	-	-
Leverage	LEV	β2	+	+	NA	NA
Return on Equity	ROE	β3	-	-	-	-
Market-to-book	MTB	β4	+	+	-	-
Size	SIZE	β5	-	-	NA	NA
Revenue Growth	REVG	β6	NA	+	NA	-

Life cycle		DIV	LEV	ROE	MTB	SIZE	REVG
Introduction	Average	0.0122	0.6204	-0.5314	2.2956	13.9591	64%
Introduction	Standard Deviations	0.0332	0.2277	1.2494	3.0374	1.6067	64%
Growth	Average	0.0486	0.5726	-0.072	3.2696	14.8103	87.88%
Growth	Standard Deviations	0.0921	0.1711	2.6206	9.8531	1.5684	87.88%
Mature	Average	0.1879	0.5232	0.1046	3.5239	14.8089	81.94%
Mature	Standard Deviations	1.4171	0.1829	2.0340	11.5888	1.6306	81.94%
Shake-out	Average	0.0497	0.5464	0.0192	1.6998	14.2523	69.49%
Shake-out	Standard Deviations	0.1156	0.2306	0.5032	2.0113	1.4396	69.49%
Decline	Average	0.0663	0.4997	-0.1253	0.8640	14.0013	39.29%
Decline	Standard Deviations	0.2537	0.2204	0.6919	0.9468	0.9400	39.29%

	DIV		LEV		ROE		MTB		SIZE
DIV	1

LEV	0.086	^ 1%;	1

ROE	-0.579	^ 1%;	-0.133	^ 1%;	1

MTB	0.659	^ 1%;	0.236	^ 1%;	-0.508	^ 1%;	1

SIZE	-0.012		0.223	^ 1%;	0.058	^* * 5%,	-0.55	^* * 5%,	1

$P (LIFE CYCLE) = β_{0} = β_{1} {DIV}_{it} + β_{2} {LEV}_{it} + β_{3} {ROE}_{it} + β_{4} {MTB}_{it} + β_{5} {SIZE}_{it} + β_{6} {REVG}_{it}$
Stage: Introduction					Stage: Growth
Variables	B		p-valor	Exp(B)	Variables	B		p-valor	Exp(B)
Intercepto	0.583		0.707		Intercepto	-1.348	^* * 5%,	0.018
DIV	-25.946	^ 1%;	<0.001	5.395 E-12	DIV	-5.824	^ 1%;	<0.001	0.03
LEV	3.308	^ 1%;	<0.001	27.320	LEV	1.935	^ 1%;	<0.001	6.922
ROE	-0.612	^ 1%;	0.001	0.542	ROE	-0.501	^ 1%;	0.004	0.606
MTB	-0.099		0.190	0.906	MTB	0.012		0.406	1.012
SIZE	-0.248	^* * 5%,	0.018	0.780	SIZE	0.013		0.736	1.013
REVG	-0.459		0.170	0.632	REVG	0.643	^ 1%;	<0.001	1.902
Stage: Shake-out					Stage: Decline
Variables	B		p-valor	Exp(B)	Variables	B		p-valor	Exp(B)
Intercepto	1.657		0.093		Intercepto	2.851		0.148
DIV	-2.893	^* * 5%,	0.024	0.055	DIV	2.361		0.096	10.596
LEV	1.804	^ 1%;	0.003	6.077	LEV	0.394		0.729	1.483
ROE	-0.561	^* * 5%,	0.026	0.571	ROE	-1.026	^ 1%;	0.02	0.358
MTB	-0.176	^* * 5%,	0.012	0.838	MTB	-1.468	^ 1%;	<0.001	0.23
SIZE	-0.234	^ 1%;	0.001	0.791	SIZE	-0.252		0.092	0.778
REVG	-0.371		0.114	0.690	REVG	-1.261	^ 1%;	0.003	0.0283

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[1] Corresponding author:† Universidade Federal do Espírito Santo (UFES). E-mail: wandob@gmail.com

Variable	Introduction	Growth	Expected/Achieved	Analysis
Variable	Expected/Achieved	Analysis	Expected/Achieved	Analysis
DIV	- / -	Accept	- / -	Accept
LEV	+ / +	Accept	+ / +	Accept
ROE	- / -	Accept	- / -	Accept
MTB	+ / NS	NC	+ / NS	NC
SIZE	- / -	Accept	- / NS	NC
REVG	NA / NS	NA	+ / +	Accept
Variable	Shake-out	Decline	Expected/Achieved	Analysis
Variable	Expected/Achieved	Analysis	Expected/Achieved	Analysis
DIV	- / -	Accept	- / NS	NC
LEV	NA / +	NE	NA / NS	NA
ROE	- / -	Accept	- / -	Accept
MTB	- / -	Accept	- / -	Accept
SIZE	NA / -	NE	NA / NS	NA
REVG	NA / NS	NA	- / -	Accept