Firm policy revolving around capital structure and dividend pay-outs need to take into cognizance that operational inefficiencies could also be a life stage phenomenon rather than agency issues led misallocation of resources.
Authors
Vikas Sangwan, Assistant Professor, Jindal Global Business School, O.P. Jindal Global University, Sonipat, Haryana, India.
Shivam Kushwaha, Institute of Rural Management Anand (IRMA), Anand, Gujarat, India.
Puneet Prakash, Department of Finance and Risk Management, Missouri State University, Springfield, Missouri, USA.
Anoop Singh, Department of Industrial and Management Engineering, Indian Institute of Technology Kanpur, Kanpur, Uttar Pradesh, India.
Summary
We investigate the link between a firm’s life cycle and its operational efficiency and find that operational efficiency first increases and then decreases with the life cycle thus exhibiting an inverted – U shaped relationship. Our empirical examination reveals the relationship holds for subsamples of dividend- and non-dividend-paying firms, with dividend-paying firms displaying higher efficiency scores than their non-dividend-paying counterparts in each life cycle stage. In the literature on benchmarking the moderating role of a firm’s life cycle stage has not been considered.
Thus, our findings have empirical significance for efficiency comparison in benchmarking studies. Including the life cycle stage of comparable firms permits a more homogeneous cohort for efficiency comparisons. Consequently, firm policy revolving around capital structure and dividend pay-outs need to take into cognizance that operational inefficiencies could also be a life stage phenomenon rather than agency issues led misallocation of resources.
Additionally, we find that when operating efficiency is the variable being studied in a multivariate setting, controlling for the dividend status of a firm reduces omitted variable bias as dividend pay-outs and firm lifecycle are known to be intertwined.
Published in: Applied Economics
To read the full article, please click here.
