The Effects of a Firm Life Cycle and Size on its Priority of External Financing Alternatives

The most important decisions made by managers are those concerning capital structure. These decisions directly influence firm’s value which in turn influences the maximization of owner’s equity. In addition، according to life cycle hypothesis the life cycle includes: birth، infancy، growth، maturity، and decline. Thus it is claimed that external financing decisions (borrowing- share issue) are influenced by the aforementioned life cycles in which a firm is. This paper studies the influence of variables such as a firm life cycle and its size on a firm’s priority of external financing alternatives، in the period of 2005 - 2010 (534 year-firms). To test the hypotheses we use panel data multiple regression model. The research findings indicate that there is a priority of external financing in the stages of growth and maturity and it appears that firms under study a follow pecking order theory in these two stages and there is no priority in the stage of decline. Moreover، the research findings reveal that the size variable had no significant influence on the priority of external financing in growth and maturity stages as well as on those firms in their decline stage.