FIRM LIFECYCLE AND FINANCIAL DISTRESS: A STUDY OF NON-FINANCIAL FIRMS LISTED ON THE PAKISTAN STOCK EXCHANGE

Abstract

Distress affects the financial health and sustainability of firms. A lot of studies have been conducted in the past where the effect of different variables on financial distress has been studied. However, relationship between different stages of a firm life cycle and financial distress is less explored. This research analyzed the relationship between financial distress and firm life cycle. The purpose of this research is to identify the stages of firm life cycle in which companies are financially distressed so that it helps the stakeholders in making decisions according to stage of the firm life. The firm cycle is divided into five stages based on Dickinson’s model. Altman Z-Score was used to measure financial distress. The control variables were leverage, firm size, profitability, sales growth, and fixed assets growth. The data was collected from the annual reports of nonfinancial companies listed on the Pakistan Stock Exchange from 2014 to 2021. Panel data regression with fixed effects was run for 314 Companies in 11 industries. The finding of this research is that the firm life cycle does influence financial distress. Firms in the introduction and decline stages are financially distressed. Growing and mature firms are not financially distressed. Industries were also analyzed to find out which industries are financially distressed. The industries were financially distressed. Thus, stakeholders should make financial policies and decisions according to the stage of the firm life cycle and the nature of the industries.