Abstract

The firm life cycle theory states that the enterprises have different risk characteristics in the different stage of the life cycle and pricing the firm factors by the capital market depends on the relative importance of these factors in different stages of the life cycle. The subject examined in this study is that whether the life cycle stages caused the different capital market reaction to risk factors? And if there is a convergence between the changes in the life cycle stages and risk factor relations? Common risk factors examined here are book value to market value, beta, size and financial leverage. The statistical universe of this study is the nonfinancial firms in Tehran Stock Exchange during the years 1383 to 1389. These enterprises firstly divided into three groups of growing, mature and declining ones by using the sales growth variables, change in capital expenditure and the firm age. The estimated regression model is a combination of the risk factors and performance with stock return which is adapted from the Arbitrage Pricing Theory. These results show that the capital market isn`t pricing the risk factors equally and the value relevance of the risk factors depends on the firm life cycle. Also the Cramer test results show that there is a significant difference between the risk factors` adjusted R-squared of the enterprises in the growth and decline stages with the mature ones. But this difference does not exist between the enterprises in growth and decline stages.