The Lifecycle of the Firm, Corporate Governance and Investment Performance

  title={The Lifecycle of the Firm, Corporate Governance and Investment Performance},
  author={Jimmy A. Saravia},
  journal={ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics - Econometrics of Corporate Finance \& Governance (Topic)},
  • J. Saravia
  • Published 2013
  • Business
  • ERN: Other Econometrics: Applied Econometric Modeling in Financial Economics - Econometrics of Corporate Finance & Governance (Topic)
According to firm lifecycle theory the agency costs of free cash flows are not transitory problems, but are a recurrent issue once firms reach a certain stage in their lifecycle. In particular, as firms mature their cash flows increase substantially while their investment opportunities decline and, to prevent retrenchment, managements need to invest in negative net present value projects. However, too much overinvestment leads to low firm valuation and potentially a hostile takeover. This paper… Expand
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