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Product Life Cycles in Corporate Finance

Author

Listed:
  • Gerard Hoberg
  • Vojislav Maksimovic

Abstract

We develop a novel 10-K text-based model of product life cycles and examine firm investment policies. Conditioning on the life cycle substantially improves the power of q to explain investment and reveals a natural ordering of investments over the life cycle. While R&D and CAPX sensitivity are high early in the cycle, acquisitions arise as products mature, and divestitures and product extension investments arise as products decline. q-sensitivities that condition on the life cycle can vary by as much as 400% from traditional sensitivities. The life cycle framework further reveals an enriched relationship between competition, investment, and corporate profits.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Gerard Hoberg & Vojislav Maksimovic, 2022. "Product Life Cycles in Corporate Finance," The Review of Financial Studies, Society for Financial Studies, vol. 35(9), pages 4249-4299.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:9:p:4249-4299.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab134
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    Citations

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    Cited by:

    1. Manish Jha & Jialin Qian & Michael Weber & Baozhong Yang, 2024. "ChatGPT and Corporate Policies," NBER Working Papers 32161, National Bureau of Economic Research, Inc.
    2. Filippo Mezzanotti & Timothy Simcoe, 2023. "Research and/or Development? Financial Frictions and Innovation Investment," Working Papers 23-39, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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