The lifecycle of the firm, corporate governance and investment performance

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dc.accrualmethodspa
dc.accrualmethodspa
dc.contributor.authorSaravia, Jimmy A.
dc.coverage.spatialMedellín de: Lat: 06 15 00 N degrees minutes Lat: 6.2500 decimal degrees Long: 075 36 00 W degrees minutes Long: -75.6000 decimal degreeseng
dc.creator.emailjsaravia@eafit.edu.cospa
dc.date.accessioned2014-01-14T15:03:43Z
dc.date.available2014-01-14T15:03:43Z
dc.date.issued2013-11-01
dc.description.abstractAccording 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 extends firm lifecycle theory by arguing that to neutralize the threat of takeover, managements of maturing firms and their boards of directors progressively deploy antitakeover provisions which allow them to overinvest safely and prevent a decline in the size of their corporations. Firm lifecycle theory is also tested empirically. In this respect, a contribution of this paper is to develop a new empirical index that permits the identification of mature corporations with governance problems due to agency costs of free cash flows. The empirical results show that as firms mature agency costs of free cash flows increase, more antitakeover provisions are put into place and firms invest in projects with returns below their cost of capital.eng
dc.identifier.jelG31
dc.identifier.jelG34
dc.identifier.urihttp://hdl.handle.net/10784/1258
dc.language.isoengeng
dc.publisherUniversidad EAFITspa
dc.publisher.departmentEscuela de Economía y Finanzasspa
dc.rights.accessrightsinfo:eu-repo/semantics/openAccesseng
dc.rights.localAcceso abiertospa
dc.subject.keywordFirm Life Cycleeng
dc.subject.keywordFree Cash flowseng
dc.subject.keywordCorporate Governanceeng
dc.subject.keywordOverinvestmenteng
dc.titleThe lifecycle of the firm, corporate governance and investment performanceeng
dc.typeworkingPapereng
dc.typeinfo:eu-repo/semantics/workingPapereng
dc.type.hasVersiondrafteng
dc.type.localDocumento de trabajo de investigaciónspa

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