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    Corporate life cycle and cost of equity capital.

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    Fulltext not available
    Authors
    Hasan, Mostafa
    Hossain, M.
    Cheung, Adrian
    Habib, A.
    Date
    2015
    Type
    Journal Article
    
    Metadata
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    Citation
    Hasan, M. and Hossain, M. and Cheung, A. and Habib, A. 2015. Corporate life cycle and cost of equity capital. Journal of Contemporary Accounting and Economics. 11 (1): pp. 46-60.
    Source Title
    Journal of Contemporary Accounting and Economics
    DOI
    10.1016/j.jcae.2014.12.002
    ISSN
    1815-5669
    School
    School of Accounting
    URI
    http://hdl.handle.net/20.500.11937/13273
    Collection
    • Curtin Research Publications
    Abstract

    This paper investigates the effect of the corporate life cycle on the cost of equity capital. Using a sample of Australian firms between 1990 and 2012, we find that the cost of equity capital varies over the life cycle of the firm. In particular, using Dickinson’s (2011) life cycle measure, we find that the cost of equity is higher in the introduction and decline stages and lower in the growth and mature stages, resembling a U-shaped pattern. When DeAngelo, DeAngelo, and Stulz’s (2006) life cycle measure – earned/contributed capital mix (RE/TA) – is used, we find that the cost of equity decreases as retained earnings as a proportion of total asset increases after controlling for other firm characteristics and unobserved heterogeneity. These findings are shown to be robust using a series of sensitivity tests.

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