The Firm's Life Cycle -- Investment and Financing Decisions

The research area of the network activities is within the field of corporate finance. Two central questions of corporate finance concern how firms finance their activities and how investment decisions are made. However, finding answers to such general questions remains challenging, one obvious reason being that firms are often very diverse: A large cross-sectional heterogeneity prevails. We want to analyze such questions by examining firms’ behavior at different stages of their life cycle – the simple intuition being that young firms face different challenges compared to more mature firms. Interestingly, very limited attention has yet been given to develop such a unified view. The researchers involved in the activities aim to fill this gap. Therefore, the scientific focus of this project is to establish a framework suitable for analyzing a unified view on the various phases of a firm’s life cycle. We concentrate on three distinct phases of a firm’s life cycle: first, the start-up funding and the subsequent decision to enter the stock market. Second, the firms’ real investment decisions and how they are financed (e.g. equity vs. debt). This phase also includes acquisitions from the acquirer’s point of view. Third, a focus on the end of the life cycle, e.g. the decision to sell the firm to an acquirer (now seeing an acquisition from the seller’s and target’s point of view) or to liquidate the firm’s assets. The development of such a unified framework is supported by employing both theoretical and empirical research methods.