Which Investment method is selected by companies in each stage of their Life Cycle? (Investing in operating assets or non-operational assets)

Document Type: Original Article


1 Ph.D. Candidate, Department of Accounting, Islamic Azad University, Aliabad Katoul branch, Aliabad Katoul, Iran.

2 Associate Prof., Department of Accounting, Islamic Azad University, Aliabad Katoul branch, Aliabad Katoul, Iran.

3 Assistant Prof., Department of Accounting, Islamic Azad University, Aliabad Katoul branch, Aliabad Katoul, Iran.



One of the main causes of firms’ ineffectiveness is the absence or insufficiency of appropriate investment methods. This deficiency could also be attributed to an unfortunate selecting of an inappropriate investment methods which may ultimately endanger the firms’ prospect of survival. According to the firm life cycle theory, various firms demonstrate diverse behavior when provided with an investment opportunity. These responses are largely in accordance with the stage of the life cycle in which the firm resides in at that moment. In this research, the selection of the investment method appropriate for a firm has been studied following the premises of the life cycle theory. The target populations of this study were companies admitted to Tehran Stock Exchange. Systematic removal method was adopted to recruit a sample of 118 firms. The study period was 8 years (2011-2018).  Findings suggest that firms choose to invest in operational properties when they are at the stage of growth, maturity and decline. In other words, the capital under the companies’ authority and control were employed for the firms’ mainstream activities. However, such a link was not found at the introduction stage of their life cycle. This relation has been illustrated in various industries.


Adizes, I. (1989). "Corporate Life cycles: How and Why Corporations Grow and Die and What to Do about it." Prentice Hall, Englewood Cliffs, NJ: 5-136.https://doi.org/10.1016/0024-01(92)90356-7
Anthony, J., and K. Ramesh (1992). "Association between Accounting ,Performance Measures and Stock Prices: A Test of the Life Cycle Hypothesis." Journal of Accounting & Economics Vol. 15: Pp. 203-227. https://doi.org/10.1016/0165-101(92)90018-W
Badurdeen, F., R. Aydin, et al. (2018). " A multiple lifecycle-based approach to sustainable product configuration design." Journal of Cleaner Production 200: 756-769. https://doi.org/10.1016/j.jclepro.2018.07.317
Chuang, K.-S. (2017). "Corporate life cycle, investment banks and shareholder wealth in M&As." The Quarterly Review of Economics and Finance 63: 122-134. https://doi.org/10.1016/j.qref.2016.02.008
Collins, D. W., P. Hribar, et al. (2012). "Cross sectional variation in cash flow asymmetric timeliness and its effect on the earnings-based measure of conditional conservatism." University of Iowa. http://dx.doi.org/10.2139/ssrn.2120677
Dickinson, V. (2011). "Cash flow patterns as a proxy for firm life cycle." The Accounting Review 86(6): 1969-1994. https://doi.org/10.2308/accr-10130
Francis, J. R., S. Huang, et al. (2009). "Does corporate transparency contribute to efficient resource allocation?" Journal of Accounting Research 47(4): 943-989. https://doi.org/10.1111/j.1475-679X.2009.00340.x
Hasan, M. M. (2018). "Organization capital and firm life cycle." Journal of Corporate Finance 48: 556-578. https://doi.org/10.1016/j.jcorpfin.2017.12.003
Hasan, M. M., M. Hossain, et al. (2015). "Corporate life cycle and cost of equity capital." Journal of Contemporary Accounting & Economics 11(1): 46-60. https://doi.org/10.1016/j.jcae.2014.12.002
Jaafar, H. and H. A. Halim (2016). "Refining the firm life cycle classification method: A firm value perspective." Journal of Economics, Business, and Management 4(No 2 February 20). https://doi.org/10.7763/joebm.2016.v4.376
Kousenidis, V. D., Earnings–returns relation in Greece: some evidence on the size effect and on the lifecycle hypothesis. Managerial Finance. Technological Educational Institution of Thessa loniki. 2005,31(2), P. 24-54. https://doi.org/10.1108/03074350510769488
Phung, D. N. and A. V. Mishra (2016). "Ownership structure and firm performance: Evidence from Vietnamese listed firms." Australian Economic Papers 55(1): 63-98. https://doi.org/10.1111/1467-8454.12056
Xu, Bixi. (2007). "Life cycle effect on the value relevance of common risk factors." Review of Accounting and Finance 6(2): 162-175. https://doi.org/10.1108/14757700710750838
Zhai, J. and Y. Wang (2016). "Accounting information quality, governance efficiency and capital investment choice." China Journal of Accounting Research 9(4): 251-266. https://doi.org/10.1016/j.cjar.2016.08.001