Banca de DEFESA: Renielly Nascimento Iara

ANALYSIS OF FUTURE PROFITABILITY OVER THE LIFE CYCLE OF PUBLIC COMPANIES IN EMERGING COUNTRIES

Firm life cycle; Future profitability; Emerging countries; Proxy

This study investigates how the phases of a company's life cycle influence its future profitability in the context of countries in emerging markets. Initially, a systematic literature review was conducted, aiming to identify proxies in the empirical literature that could represent the phases of the company's life cycle in empirical studies. Five proxies were identified: (i) Dickinson (2011), (ii) Anthony and Ramesh (1992), (iii) Faff et al (2016), (iv) company age, and (v) DeAngelo, DeAngelo, and Stulz (2006). To explore the future profitability of companies, considering their various life cycle phases and the macroeconomic context of seven emerging countries (South Africa, Brazil, Chile, Colombia, Egypt, Mexico, and Peru), descriptive and panel data analyses were employed. The results of the analysis revealed interesting and, at times, contradictory patterns in the relationship between the company's life cycle and its future profitability. The profitability of net operating assets, its variation, and the growth of assets are negatively correlated with future profitability, indicating a mean reversion pattern of future profitability in all countries analyzed. The relationship between the variation in asset turnover and future profitability was inconsistent among the countries, and for most of them, it was not statistically significant regardless of the life cycle proxy or the phase in which the company is in this cycle. The company's life cycle, in turn, presented controversial results, with different phases being statistically significant depending on the proxy used and the country analyzed. The maturity phase showed a positive and significant correlation with future profitability, while the interaction with the variation in asset turnover was not statistically significant. The relationship between the maturity phase and the profit margin on future profitability was significant for almost all phases and proxies, being positive in the maturity phase and negative in the other phases. The research offers valuable insights but also opens the door for future investigations that may explore even more deeply the complexities and challenges inherent in this vital relationship between the company's life cycle and its future profitability.