The Influence of Corporate Life Cycle on M&A Activity of the Company in Developing Capital Markets

Abstract

Authors:Ilya Markovich National Research University The Higher School of Economics Partyin ipartin@hse.ru

For today in academic literature there is no consensus about what factors determine the probability of a company to participate in M&A deals. Determinants of company’s M&A activity seem to be the issue of current importance. During the corporate life cycle there are changes in most company’s financial indexes. That is why the corporate life cycle stage may have a significant influence on the possibility of a company to take part in M&A. Thus, the main aim of this study is to analyze the influence of corporate life cycle stages on the probability of a company to participate in M&A deal from the perspective of acquiring firms in the developing capital markets. The analysis was provided for BRICS companies as the main drivers of M&A market. In this study for the identification of corporate life cycle stage the modified methodology of Anthony and Ramesh (Anthony, Ramesh, 1992) has been used. The application of this methodology to the emerging capital markets requires some specific adjustments of the indicators which are used in the original model. To study the influence of corporate life cycle stages on the probability of a company to participate in M&A two logistic regressions have been used. The empirical evidence from the sample of BRICS listed companies during the period from 2010 to 2013 shows the significant differences in the probability to participate in M&A deal as a buyer on the different life cycle stages. The possibility of a company to participate in M&A declines from stage to stage during the corporate life cycle. Moreover, the different influence of the same factors at various life cycle stages has been proved empirically. The research reveals the necessity of taking into account the company’s life cycle stage while investigating the probability of participation in M&A deal.