A firm's lifecycle consists of birth, growth, maturity and decline. We examine the strategies that firms choose when facing financial distress and present evidence that these choices are influenced by the corporate lifecycle. This influence is most pronounced in the choice of financial restructuring strategies such as reducing dividends or changing capital structure. We also examine if the way firms face financial distress affects the likelihood of recovery. We find that reducing investment and dividends are associated with recovery for all firms, but there is little influence of lifecycle.

This study uses the quantile regression method to determine the relative importance of internal and external sources of funds in financing corporate investments across different levels of investment activities. Our findings lend support to the first (internal–external) rung of the pecking order, as investments are more responsive to internal funds than to external funds at almost all investment levels except at top investment levels. However, empirical support for the second (debt–equity) rung of the pecking order is tenuous, as investments are more responsive to equity issuance than to debt issuance at low and medium investment levels. Intriguingly, firms rely primarily on internal funds for organic growth (via capital expenditures or R&D spending), whereas they use debt capital heavily in financing acquisition-led growth. Finally, firms at high investment levels hold large cash holdings and save a significantly large fraction of equity issue proceeds as cash.