Firm life cycle and idiosyncratic volatility |
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| Institution: | 1. School of Economics and Finance, Curtin University, Perth, Australia;2. School of Accountancy, Massey University, Private Bag 102904, Auckland, New Zealand;1. Department of Finance and Supply Chain Management, College of Business, Central Washington University, Des Moines, WA, USA;2. Department of Finance, College of Business, Bowling Green State University, Bowling Green, OH, USA;3. School of Business, Southern Wesleyan University, Central, SC, USA;4. Rayliant Investment Research, 11 Zephyr, Irvine, CA, USA;1. School of Accounting and Taxation, Goddard School of business and Economics, Weber State University, Ogden, UT 84408, United States;2. Turner School of Accountancy, Belk College of Business, University of North Carolina Charlotte, Charlotte, NC 28223, United States;3. Knox School of Accountancy, Hull College of Business, Augusta University, Augusta, GA 30912, United States |
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| 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. |
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