Preprint Article Version 1 This version is not peer-reviewed

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

Version 1 : Received: 18 January 2019 / Approved: 21 January 2019 / Online: 21 January 2019 (09:10:39 CET)

How to cite: Akbar, A.; Akbar, M.; Tang, W..; Qureshi, M.A. Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan. Preprints 2019, 2019010201 (doi: 10.20944/preprints201901.0201.v1). Akbar, A.; Akbar, M.; Tang, W..; Qureshi, M.A. Is Bankruptcy Risk Tied to Corporate Life-Cycle? Evidence from Pakistan. Preprints 2019, 2019010201 (doi: 10.20944/preprints201901.0201.v1).

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 sustainable working of an enterprise.

Subject Areas

corporate life-cycle; bankruptcy risk; financial sustainability; Pakistan

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