Firm life cycle and idiosyncratic volatility

Mostafa Monzur Hasan, Ahsan Habib*

*Corresponding author for this work

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

This paper investigates the association between idiosyncratic volatility and firm life cycle stages. Since firm performance and availability of information vary across life cycle stages, and such variation affects uncertainty about future cash flows and stock returns, we argue that idiosyncratic volatility also varies across firm life cycle stages. Using US data, this study shows that idiosyncratic volatility is significantly higher in the introduction and decline stages, and significantly lower in the growth and mature stages, when compared to that in the shake-out stage. Our study also reveals that the roles of both cash flow volatility and information uncertainty in affecting idiosyncratic volatility vary depending on firm life cycle stages. Our results are robust to alternative specifications of life cycle proxies and idiosyncratic volatility, and to an alternative regression specification.

Original languageEnglish
Pages (from-to)164-175
Number of pages12
JournalInternational Review of Financial Analysis
Volume50
DOIs
Publication statusPublished - 1 Mar 2017
Externally publishedYes

Keywords

  • Cash flow volatility
  • Firm life cycle
  • Idiosyncratic volatility
  • Information uncertainty

Fingerprint Dive into the research topics of 'Firm life cycle and idiosyncratic volatility'. Together they form a unique fingerprint.

Cite this