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Two Essays on An Examination of Life Cycle Effects and Firm Policies

In Essay 1, I investigate the impact of corporate life cycle dynamics on the
observed negative association between asset growth and stock returns in the crosssection.
I find that the asset growth effect on average exists across some life cycle stages
measured using cohorts. However, controlling for certain variables associated with the
theoretical explanations, I find there is no relation between asset growth and returns. I
argue this evidence is consistent with an agency-based explanation of the asset growth
effect. Furthermore, a decomposition of the drivers of the effect shows that different
components of assets (i.e. working capital and financing) drive asset growth effect at
different life cycle stages. From a decomposition analyses, results show that in the
youngest firms (cohort 1), asset growth effect is mostly driven by both operating liability
and stock financing on one side (financing) and noncash current assets, PPE, and growth
in other assets (for working capital) while cohort 3’s drivers appear to be stock issuances, together with noncash current assets, which I conclude offer further support for
agency issues.
In Essay 2, I examine how firms’ life cycle affect insider trading behavior, profits
surrounding trades, price informativeness, and financing constraints. I argue that if firms’
policies and characteristics change over time as shown in lifecycle literature, then from
firm characteristics that motivate insider-trading behavior, one should observe some
differences across varying life cycle stages measured using age cohorts. I find that
insiders are net sellers at all life cycle stages of a firm. Furthermore, insiders tend to trade
more in younger firms than in older firms even though they have fewer numbers of
insiders trading. Trading characteristics are generally statistically significant across
cohorts. Overall, insiders appear to predict the correct direction for positive wealth
generation when trading. Specifically, at all lifecycle stages, they appear to sell before
negative CARs, and buy during periods associated with negative CARs that lead to
positive CARs days after insider transactions. The findings on price informativeness
suggest that in general insider purchases enhance price informativeness for firms at
different lifecycle stages, however, this finding holds only for cohort 4 (oldest firms) in
the case of insider sales. The implication of this finding is that regulation should be more
lax towards purchases as compared to sales for firms, except for sales in firms that are
older. Lastly, insider trades are linked with positive investment-cash flow sensitivities for
both insider purchases and insider sales, which generally increase monotonically across
cohorts. This finding is robust to using GMM approach. / Includes bibliography. / Dissertation (Ph.D.)--Florida Atlantic University, 2018. / FAU Electronic Theses and Dissertations Collection

Identiferoai:union.ndltd.org:fau.edu/oai:fau.digital.flvc.org:fau_40713
ContributorsDanso, Charles K. A. (author), Garcia-Feijoo, Luis (Thesis advisor), Pennathur, Anita K. (Thesis advisor), Florida Atlantic University (Degree grantor), College of Business, Department of Finance
PublisherFlorida Atlantic University
Source SetsFlorida Atlantic University
LanguageEnglish
Detected LanguageEnglish
TypeElectronic Thesis or Dissertation, Text
Format204 p., application/pdf
RightsCopyright © is held by the author, with permission granted to Florida Atlantic University to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder., http://rightsstatements.org/vocab/InC/1.0/

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