Firm life cycle and financial distress: working capital strategy as moderation

Puspita Sari; Iffah Zatil Ismah

doi:10.14414/tiar.v13i1.2992

Firm life cycle and financial distress: working capital strategy as moderation

Puspita Sari, Iffah Zatil Ismah

Abstract

This study empirically examines the working capital strategy (WCF) as moderation on the probability of companies experiencing financial distress when viewed from the firm life cycle (FLC). This study uses logistic regression and moderated regression analysis (MRA) to analyze the data and SPSS 24 software to process the data. The study used the sample taken from non-financial sector companies listed on the Indonesia Stock Exchange (IDX) for the period of 2010-2020. The results indicate that the working capital strategy does not moderate the probability of companies experiencing financial distress when viewed from the firm life cycle (FLC). The probability of experiencing financial distress tends to be low in companies that are in the growth and mature phases. Thus, the results of this study confirm the firm life cycle theory.

Keywords

Financial distress, Firm life cycle, Working capital strategy

Full Text:

PDF

References

Agostini, M. (2018). Corporate Financial Distress: A Roadmap of the Academic Literature Concerning its Definition and Tools of Evaluation. In Corporate Financial Distress (pp. 5-47): Springer.

Ahmed, B., Akbar, M., Sabahat, T., Ali, S., Hussain, A., Akbar, A., dan Hongming, X. (2020). Does firm life cycle impact corporate investment efficiency? Sustainability, 13(1), 197.

Akbar, A., Akbar, M., Tang, W., dan Qureshi, M. A. (2019). Is bankruptcy risk tied to corporate life-cycle? Evidence from Pakistan. Sustainability, 11(3), 678.

Al‐Hadi, A., Chatterjee, B., Yaftian, A., Taylor, G., dan Monzur Hasan, M. (2019). Corporate social responsibility performance, financial distress and firm life cycle: evidence from Australia. Accounting & Finance, 59(2), 961-989.

Altman, E. I. (1968). Financial ratios, discriminant analysis and the prediction of corporate bankruptcy. The Journal of finance, 23(4), 589-609.

Anthony, J. H., dan Ramesh, K. (1992). Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of accounting and Economics, 15(2-3), 203-227.

Avramov, D., Chordia, T., Jostova, G., dan Philipov, A. (2013). Anomalies and financial distress. Journal of Financial Economics, 108(1), 139-159. doi:https://doi.org/10.1016/j.jfineco.2012.10.005

Black, E. L. (2000). Life-cycle stage effects on the incremental information content of earnings and cash flows. Available at SSRN 2719.

Bulan, L., dan Yan, Z. (2009). The pecking order of financing in the firm’s life cycle. Banking and Finance Letters, 1(3), 129-140.

Dickinson, V. (2011). Cash flow patterns as a proxy for firm life cycle. The accounting review, 86(6), 1969-1994.

Fama, E. F., dan French, K. R. (1992). The cross‐section of expected stock returns. The Journal of finance, 47(2), 427-465.

Fan, J. P. H., Huang, J., dan Zhu, N. (2013). Institutions, ownership structures, and distress resolution in China. Journal of Corporate Finance, 23, 71-87. doi:https://doi.org/10.1016/j.jcorpfin.2013.07.005

Foerster, S. R., dan Sapp, S. G. (2005). Valuation of financial versus non-financial firms: a global perspective. Journal of International Financial Markets, Institutions and Money, 15(1), 1-20.

Graciosa, A., Gracia, G., dan Juliana, R. (2020). Firm Life Cycle and Investment Inefficiency. Journal of Accounting and Strategic Finance, 3(2), 169-184.

Gray, B., dan Ariss, S. S. (1985). Politics and strategic change across organizational life cycles. Academy of management review, 10(4), 707-723.

Habib, A., Costa, M. D., Huang, H. J., Bhuiyan, M. B. U., dan Sun, L. (2020). Determinants and consequences of financial distress: review of the empirical literature. Accounting & Finance, 60, 1023-1075.

Habib, A., dan Hasan, M. M. (2017). Firm life cycle, corporate risk‐taking and investor sentiment. Accounting & Finance, 57(2), 465-497.

Habib, A., dan Hasan, M. M. (2019). Corporate life cycle research in accounting, finance and corporate governance: A survey, and directions for future research. International Review of Financial Analysis, 61, 188-201.

Hair, J., Black, W. C., Babin, B. J., dan Anderson, R. E. (2010). Multivariate data analysis: International version. New Jersey, Pearson.

Hasan, M. M. (2018). Organization capital and firm life cycle. Journal of corporate finance, 48, 556-578.

Hasan, M. M., Hossain, M., dan Habib, A. (2015). Corporate life cycle and cost of equity capital. Journal of Contemporary Accounting & Economics, 11(1), 46-60.

Helfat, C. E., dan Peteraf, M. A. (2003). The dynamic resource‐based view: Capability lifecycles. Strategic management journal, 24(10), 997-1010.

Iatridis, G., dan Kadorinis, G. (2009). Earnings management and firm financial motives: A financial investigation of UK listed firms. International Review of Financial Analysis, 18(4), 164-173.

Inekwe, J. N., Jin, Y., dan Valenzuela, M. R. (2018). The effects of financial distress: Evidence from US GDP growth. Economic Modelling, 72, 8-21.

Iotti, M., dan Bonazzi, G. (2018). Analysis of the risk of bankruptcy of tomato processing companies operating in the inter-regional interprofessional organization “OI Pomodoro da Industria Nord Italia”. Sustainability, 10(4), 947.

Jenkins, D. S., Kane, G. D., dan Velury, U. (2004). The impact of the corporate life‐cycle on the value‐relevance of disaggregated earnings components. Review of Accounting and Finance.

Jirásek, M., dan Ueno, M. (2019). Grow up to be Different: Firm Responses to Performance Feedback over Their Life Cycle. Paper presented at the European Conference on Innovation and Entrepreneurship.

Jovanovic, B. (1982). Selection and the Evolution of Industry. Econometrica: Journal of the econometric society, 649-670.

Keasey, K., Pindado, J., dan Rodrigues, L. (2015). The determinants of the costs of financial distress in SMEs. International Small Business Journal, 33(8), 862-881.

Koh, S., Durand, R. B., Dai, L., dan Chang, M. (2015). Financial distress: Lifecycle and corporate restructuring. Journal of corporate finance, 33, 19-33.

Li, Y., Li, X., Xiang, E., dan Djajadikerta, H. G. (2020). Financial distress, internal control, and earnings management: Evidence from China. Journal of Contemporary Accounting & Economics, 16(3), 100210.

Miller, D., dan Friesen, P. H. (1984). A longitudinal study of the corporate life cycle. Management Science, 30(10), 1161-1183.

Nazir, M. S., dan Afza, T. (2009). Impact of Aggressive Working Capital Management Policy on Firms' Profitability. IUP Journal of Applied Finance, 15(8).

Ndicu Ndua, D. (2018). Financial Innovation Risk, Financial Distress and Firm Value: A Critical Review of Literature.

Panda, A. K., dan Nanda, S. (2018). Working capital financing and corporate profitability of Indian manufacturing firms. Management Decision.

Pandey, A. K., dan Saluja, D. (2014). Firm Value and Corporate Governance in the Indian Banking Sector: An Empirical Analysis. LBS Journal of Management & Research, 12, 52-62.

Pindado, J., Rodrigues, L., dan de la Torre, C. (2008). Estimating financial distress likelihood. Journal of Business Research, 61(9), 995-1003.

Sharma, S., Durand, R. M., dan Gur-Arie, O. (1981). Identification and analysis of moderator variables. Journal of marketing research, 18(3), 291-300.

Spence, A. M. (1977). Entry, capacity, investment and oligopolistic pricing. The Bell Journal of Economics, 534-544.

Sumaryati, A., dan Tristiarini, N. (2018). The influence of cost of equity on financial distress and firm value. Paper presented at the 1st Economics and Business International Conference 2017 (EBIC 2017).

Wang, X., Xu, Y. C., Lu, T., dan Zhang, C. (2020). Why do borrowers default on online loans? An inquiry of their psychology mechanism. Internet Research.

Wang, Z., Akbar, M., dan Akbar, A. (2020). The interplay between working capital management and a firm’s financial performance across the corporate life cycle. Sustainability, 12(4), 1661.

Wruck, K. H. (1990). Financial distress, reorganization, and organizational efficiency. Journal of Financial Economics, 27(2), 419-444.

DOI: http://dx.doi.org/10.14414/tiar.v13i1.2992