Firm life cycle, profitability and the impact of financial crisis: Evidence from developing market

Abstract

This study investigates the effect of the 2007–2009 financial crisis on the profitability of companies in selected companies in Jordan using a cash flow-based, firm life cycle approach which Dickinson (2008) developed. The study includes five stages of a company including introduction, growth, maturity, shake-out, and decline stages. Annual data is used for Jordanian firms for the time period 2000–2018. Following the Dickinson (2008) model, panel data regression has been used as the anchor technique for analysis. The results of the study indicate that the return on net worth significantly explains the profitability of firms and that the fixed effects in panel regressions are more appropriate for such a study. The maximum impact of the financial crisis on the profitability of firms was found for the firms in the introduction stage. The estimated model for growth stage firms can be used to forecast the profitability of firms during a financial crisis and hence will help companies in financial planning and performance management.