Life Cycle and Implied Duration of Stocks in the Tehran Stock Exchange

Document Type : Research Paper

Authors

1 Associate Prof., Department of Financial Engineering, Faculty of Accounting and Financial Sciences, College of Management, University of Tehran, Tehran, Iran.

2 Associate Prof., Department of Financial and Banking, Faculty of Management and Accounting, Allameh Tabataba'i University, Tehran, Iran.

3 Ph.D. Candidate, Department of Finance, Kish International Campus, University of Tehran, Kish, Iran.

10.22059/acctgrev.2025.381472.1009005

Abstract

Objective
The timing of anticipated cash flows and the period necessary for the recovery of the initial capital constitute critical considerations for common equity investors. Macaulay duration serves as a metric for determining the payback period and is widely used to measure the sensitivity of fixed-income securities to changes in interest rates. Implied equity duration represents an extension and generalization of bond duration applied to common stocks. In recent decades, efforts to better understand decision-making processes over time and to identify behavioral patterns of firms have led researchers to focus on the corporate life cycle. The firm life cycle framework seeks to depict how a company grows, matures, and declines through an analysis of its strategies and organizational structures. The foundation of the firm life cycle theory suggests that investment decisions, financing choices, and financial performance are profoundly influenced by changes in the firm’s organizational capabilities at different stages of its life cycle. In other words, a firm’s capital structure evolves throughout its life cycle. This article aims to explore the relationship between the life cycle and the implied duration of the stocks of firms listed in the Tehran Stock Exchange.
Methods
In this study, financial data of companies listed on the Tehran Stock Exchange over a 13-year period from 2010 to 2022 were utilized to calculate implied equity duration, corporate life cycle, and other variables. The statistical sample consists of 145 manufacturing firms, which were analyzed using EViews software and multivariate regression analysis.
Results
The findings of this study indicate a significant negative relationship between the firms’ life cycle—measured by the retained earnings to equity ratio—and the implied duration of their stocks. Specifically, as the retained earnings to equity ratio increases, the implied stock duration decreases. Conversely, no significant relationship was found between the other life cycle measure—retained earnings to total assets—and implied equity duration, although the coefficient was negative. When examining different stages of the life cycle, the relationship between life cycle indicators (retained earnings to equity and retained earnings to total assets) and implied stock duration was not statistically significant during the growth stage. However, during the maturity and decline stages, a significant negative relationship was observed, with a more pronounced decrease in implied duration occurring during the decline phase.
Conclusion
According to the research findings, firms in the decline stage, facing reduced investment opportunities and having adequate access to financial resources both internally and externally, tend to have management that favors distributing dividends to shareholders. Consequently, the implied equity duration of firms in the decline stage decreases more significantly compared to those in the maturity stage. The practical application of duration as a concept depends on investors’ strategies and risk tolerance. Risk-averse investors may prefer to invest in stocks of firms in the decline stage or those approaching the end of the maturity stage to achieve suitable returns while implementing mechanisms to protect their portfolios. Conversely, investors with higher risk tolerance might opt for firms in the maturity stage. It is also noteworthy that the relationship between the life cycle and equity duration during the growth stage was found to be insignificant.

Keywords

Main Subjects

References

 
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Accounting and Auditing Review
Volume 33, Issue 1
2026
Pages 186-221

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