Business Life Cycle Theory

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2.5.6 Life Cycle Theory "The basic premise of the theory of the cycle of organizational life is that the firm in a manner similar to living organisms, progressing through a number of stages of life, beginning with birth and ends with death" (FRIELINGHAUS et al., 2005, f. 9). According to authorities, the life cycle of a business affects the capital structure of a firm, because the transition from one stage to another, financial needs can be different (Adizes, 1979, p. 4). The progress of a business or product passes through successive stages, starting from the origin until his inevitable fall. Life cycle phases typically include: conception (birth), rapid growth, expansion into new markets, maturity and decline at the time when falling consumer…show more content…
Adolescence: Phase attendance and that of adolescence are so-called "fast-growing stage." The difference between stage and stage of adolescence attendance is the changing roles of founders and changes in the culture of the firm, as company owners start to employ operational executives. Showing at this stage of internal conflicts and management must balance the need for further growth of the company, the need for profit growth. Because of good investment opportunities, and to continue the growth, companies often issue new capital to private investors. 5. Boom: This is an optimal stage of the business life cycle, since there is a balance between external factors, internal factors and management objectives, so that all stakeholders feel good within the firm. Thus the firm operates with maximum efficiency and this stage could be classified as a transition between growth and maturation. At this stage of life, the level of the firm's risk is low; it is still likely to attract investors to the realization of new projects. 6. Sustainability: At this stage the company has fewer opportunities for investment, but it has a higher return compared with the cost of capital. This stage is considered the stage of "maturity", but with a marked slowdown in…show more content…
Bureaucracy: This stage of life is the beginning of the end of the company, during which the business does not have sufficient resources to finance its activities, followed by the initiation of procedures, new rules and policies. 10. Death: At this stage the company no longer exists and there is no capital structure. Four of the last stages of the Adizes model are called "fall" and "death". Frielinghaus et al. (2005), argued that according to the life cycle theory of capital structure, debt ratios should be increased with the progress of the firm, from the early stages of her life to them later. Trade-off theory supports the life cycle theory. So, firms in the early stages (infancy, continuity and teens) cannot afford the high levels of debt, because their costs of bankruptcy are high and their incomes are too low to ensure benefit from deductions interest debt before tax. Stages of maturity and stability, higher earnings are prompting firms to provide advantages from the use of debt. And it suggests and agency theory, firms managed by the owner, has the lowest debt ratio, which will tend to gradually increase its development. This process will be followed by the issuance of new shares as well as specialized hiring

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