Cash flow and the corporate life cycle

: an empirical analysis

Abstract

Being a fundamental for Adizes that every firm has a natural life cycle that goes through stages with predictable patterns of characteristics and behaviors, in this study we will explore the literature in order to identify those main characteristics and behaviors for each stage, and test the possibility of stage identification through accounting analysis. The Corporate Life-Cycle, as literature classifies, has several proposed models which can be useful to assist the analysis of a “business opportunity”. To develop our study, we settled several accounting proxies, which will provide a quantitative measure of firms’ qualitative performance provided by literature. We selected the cash-flow statement as the main proxy of our study which summarizes the operational, investing and financing activities of the firm. We believe in the possibility of having a unique combination of signals between the CFO, CFI, and CFF for each stage, and to test the validity of this likelihood pattern, we settled several financial ratios as a proxy of firm performance. These ratios intent is to provide a correspondence between the qualitative analyze which are enhanced by literature, and the quantitative one which are a result of the performance and leads the firm to have specific characteristics and behaviors. Furthermore we will see if the information provided through the analysis of financial statements is valid to identify a firm stage and consequently usefulness to assist the entrepreneur analyzing a detected opportunity.

Date of Award	2009
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Luis Pacheco (Supervisor) & Paulo Alves (Co-Supervisor)