Life cycle stage as determinant of operational efficiency with implications for benchmarking
Abstract
We investigate the link between a firm’s life cycle and its operational efficiency and find that operational efficiency first increases and then decreases with the life cycle thus exhibiting an inverted–U shaped relationship. Our empirical examination reveals the relationship holds for subsamples of dividend- and non-dividend-paying firms, with dividend-paying firms displaying higher efficiency scores than their non-dividend-paying counterparts in each life cycle stage. In the literature on benchmarking the moderating role of a firm’s life cycle stage has not been considered. Thus, our findings have empirical significance for efficiency comparison in benchmarking studies. Including the life cycle stage of comparable firms permits a more homogeneous cohort for efficiency comparisons. Consequently, firm policy revolving around capital structure and dividend pay-outs need to take into cognizance that operational inefficiencies could also be a life stage phenomenon rather than agency issues led misallocation of resources. Additionally, we find that when operating efficiency is the variable being studied in a multivariate setting, controlling for the dividend status of a firm reduces omitted variable bias as dividend pay-outs and firm lifecycle are known to be intertwined.
Department(s)
Finance, Economics and Risk Management
Document Type
Article
DOI
10.1080/00036846.2023.2277688
Keywords
benchmarking, data envelopment analysis, dividend policy, Firm life cycle, operational efficiency
Publication Date
1-1-2024
Recommended Citation
Prakash, Puneet; Sangwan, Vikas; Kushwaha, Shivam; and Singh, Anoop, "Life cycle stage as determinant of operational efficiency with implications for benchmarking" (2024). Faculty Scholarship. 500.
https://bearworks.missouristate.edu/articles00/500
Journal Title
Applied Economics
