Back Issues 11-20

THE IMPACT OF FINANCIAL CONSTRAINT ON FIRM GROWTH: AN ORGANIZATIONAL LIFE CYCLE PERSPECTIVE AND EVIDENCE FROM TAIWAN

Jiang-Chuan Huang

School of Business, Putian University

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Jen-Jen Tseng*

Department of Finance, Chien Hsin University of Science and Technology

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Hueh-Chen Lin

School of Business, Putian University

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Abstract

This paper explores the relationships between cash flow, leverage and growth opportunities to ascertain whether financial constraints influence a firm’s growth based on an organizational life cycle perspective. Results show that cash flow is positively related to a firm’s growth across firm life cycle stages, while leverage is negatively related to a firm’s growth for firms in the growth and mature stages of the firm life cycle. Moreover, the sensitivity of growth to cash flow of growth-stage firms is greater than that of firms in the mature and decline stages. However, the sensitivity of growth to leverage for the decline-stage firms is the highest among firms in all stages of the life cycle. The evidence suggests that firms in the growth and mature stages may conform to the pecking order to promote growth, while firms in the decline stage may consider to follow signaling theory to promote growth because both dominant theories are individually suitable for firms to promote growth in different stages of the firm life cycle.

Key words: organizational life cycle, financial constraints, cash flow, debt structure, capital structure.

Attachments:

1018 Final.pdf

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142 kB