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 linkcopy

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

Authorship SCIMAGO INSTITUTIONS RANKINGS

This paper analyses the relation between firms' life cycles stages according to Dickinson's (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, 2010; MILLER; FRIESEN, 1984; FAMA; FRENCH, 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

ROE	-0.579	**	-0.133	**	1

MTB	0.659	**	0.236	**	-0.508	**	1

SIZE	-0.012		0.223	**	0.058	*	-0.55	*	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	*	0.018
DIV	-25.946	**	<0.001	5.395 E-12	DIV	-5.824	**	<0.001	0.03
LEV	3.308	**	<0.001	27.320	LEV	1.935	**	<0.001	6.922
ROE	-0.612	**	0.001	0.542	ROE	-0.501	**	0.004	0.606
MTB	-0.099		0.190	0.906	MTB	0.012		0.406	1.012
SIZE	-0.248	*	0.018	0.780	SIZE	0.013		0.736	1.013
REVG	-0.459		0.170	0.632	REVG	0.643	**	<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	*	0.024	0.055	DIV	2.361		0.096	10.596
LEV	1.804	**	0.003	6.077	LEV	0.394		0.729	1.483
ROE	-0.561	*	0.026	0.571	ROE	-1.026	**	0.02	0.358
MTB	-0.176	*	0.012	0.838	MTB	-1.468	**	<0.001	0.23
SIZE	-0.234	**	0.001	0.791	SIZE	-0.252		0.092	0.778
REVG	-0.371		0.114	0.690	REVG	-1.261	**	0.003	0.0283

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[TFN1] Notes: DIV: Dividends paid out over equity; LEV: Leverage (debt-to-asset); ROE: Return on Equity; MTB: growth opportunity (market-to-book); SIZE: Size of firms (ln of total assets); REVG: percentage of companies with positive growth in sales (growth/ increase).

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