The Relationship between Firm Life Cycle and Stock Price Crash Risk with an Emphasis on Information Asymmetry and Behavioral Approach

Firm life cycle reflects a firm’s evolvement arising from changes in organization's internal and external factors. Recently, the rate of business change has increased dramatically, suggesting a bigger role for life cycle in the valuation process. At the same time, the recent financial crisis and the resulting losses that were incurred, have spurred additional interest in understanding the determinants of crash risk. The purpose of this study was to investigate the relationship between firm life cycle and stock price crash risk of companies listed on the Tehran Stock Exchange. The number 120 was chosen for the period 2007-2013. Combined data were used to test the hypotheses of the model. In order to evaluate the company life cycle, Dickinson (2011) pattern was used. According to this model, companies are divided to five stages: introduction, growth, Mature, Shake-Out and decline. The results show that crash risk is highest in the introduction and growth stage of the life cycle. While a significant relationship there no observed between other life cycle stages and stock price crash risk. The results showed that under conditions of high information asymmetry, stock price crash risk is more for the companies in the introduction and growth..