Original Research

Capital structure and the firm’s life stage

A. Frielinghaus, B. Mostert, C. Firer
South African Journal of Business Management | Vol 36, No 4 | a640 | DOI: https://doi.org/10.4102/sajbm.v36i4.640 | © 2018 A. Frielinghaus, B. Mostert, C. Firer | This work is licensed under CC Attribution 4.0
Submitted: 11 October 2018 | Published: 30 December 2005

About the author(s)

A. Frielinghaus, Graduate School of Business, University of Cape Town, South Africa
B. Mostert, Graduate School of Business, University of Cape Town, South Africa
C. Firer, Graduate School of Business, University of Cape Town, South Africa

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Abstract

In this paper we argue the case for a relationship between capital structure and a firm’s life stage. We provide an overview of the two sets of theories and follow this with a proposed linkage between the life stage and capital structure. We use the Adizes life stage model to assess the life stage of the firms in our sample. Our pilot study found a statistically significant relationship between life stage and the capital structure of respondents. The nature of the relationship (more debt in the early and late life stages than in prime) supports the pecking order theory of capital structure and suggests a practical use of the life stage model in helping firms to understand how their financing is likely to change over time.

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