Corporate Life Cycles and Analyst Recommendations

Abstract

This study examines the relationship between firm life cycle stages and analyst recommendations. Using a dataset covering 1995 to 2022, we refine the sample to 62,731 firm-year observations and employ established models to create proxies for the corporate life cycle stages. The regression results reveal positive and significant associations between three life cycle stages—introduction, growth, and maturity (compared to shake-out)—and analyst recommendations, while the decline stage (compared to shake-out) is negatively associated with analyst recommendations. In an additional analysis, we find that financial distress impacts analyst recommendations, particularly in the introduction and decline stages, an association that reflects agency considerations and information asymmetry. An analysis of the interaction between analyst recommendations and corporate risk-taking reveals varying effects across the life cycle stages. Risk-taking and analyst recommendations positively interact in the introduction, growth, and decline stages, with a positive relationship in the maturity stage. These findings underscore the complex interplay between CLC dynamics, financial distress, risk-taking behavior, and analyst recommendations and provide insights into market factors and information dynamics. Our results are robust using different measures of CLC, Tobit regression, and Firm-Fixed Effect regression.