An Empirical Research On The Influence Of Growth Options On The Trend Of Firm Valuation Along With The Life Cycle

The trend of firm valuation along with the life cycle is influenced by the dynamic change of growth options. Capital expenditure and R&D investment indicating the expending and generating of growth options, respectively, have different effects on this trend. Furthermore, the trend of firm valuation along with the life cycle is determined by the relative effect of exercising and generating of growth options.Based on discussion of research background and review of relevant theories, this paper uses A-share listed firms during 1995 and 2014 in Shanghai and Shenzhen Exchanges as samples to examine the trend of firm valuation along with the life cycle and the effects of capital expenditure and R&D investment on the trend. Moreover, we test the relative importance of capital expenditure and R&D investment on the trend.The empirical result shows that there is a negative relationship between firm valuation and life cycle and there is a more obvious downward trend of firm valuation along with the life cycle in the firms with high capital expenditure or low R&D investment. The negative relationship between firm valuation and life cycle will be enhanced(weakened) by capital expenditure(R&D investment).In addition, we found that capital expenditure and R&D investment jointly determine the firm valuation trend along with the life cycle. At the early stage of life cycle, the effect of capital expenditure is greater than R&D investment, which leads to the downward trend of firm valuation along with the life cycle. As the life cycle proceeds, the effect of R&D investment increase and get close to or even become greater than capital expenditure, which results in the upward trend of firm valuation along with the life cycle.