Financing Strategy, Shareholder Value Creation Over Firms Life Cycle

In this paper, we investigate on the capital structure especially on the external finance source. We also try to find out the correlation between the leverage and the shareholder value creation. We focus our study on the corporate life cycle that is nowadays very used in finance work. The paper employs the comparative analysis and the statistical technique of Pearson´s correlation analysis. We find that the start-up and growth firms in their financing strategy rely on the equity financing. Inversely mature firms rely on debt financing. Moreover we have found for the start-up firms, there is a positive correlation between the shareholder value creation and the financial leverage though the magnitude of the relation is very small while for the growth firms and mature firms the relationship turns to be the inverse. We draw the conclusion that the overall objective when designing the optimal mixture of financing instruments is to keep investors and lenders satisfied. Lenders would want companies to issue equity because it makes them safer. Shareholders would want companies to issue more debt because it disciplines managers to effectively manage the corporation in a way to ensure value creation.