Leaders vs. Laggards: Conditional Firm Life Cycle and its Effect on Operating and Market Performance

• In Event: Valuation

Abstract

This study utilizes a combination of firm-specific and industry life cycle information, referred to as conditional life cycle, to determine its effect on future operating and market performance. Conditional life cycle differentiates firms in which the firm and industry life cycle stages are congruent; from those in which the firm and industry life cycle stages are incongruent. We find conditional life cycle predicts which firms will exhibit extreme profitability and abnormal stock market returns in the future. While conditional life cycle directly impacts firm profitability, investors do not fully incorporate this information into market price. Specifically, investors undervalue firms that lag the industry. The conditional life cycle proxy has useful applications in analysis, forecasting, valuation, and as a control variable for future research.

Authors

• Brett Wooten Cantrell, University of Mississippi

• Victoria Dickinson, University of Mississippi