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Corresponding author:
1 Department of Applied Economics, Odessa Institute of Trade and Economics of Kyiv National University of Trade and Economics.
E-mail: victor-koval@ukr.net
2 Department of Accounting, Economics and Human Resources Management of Enterprise, Prydniprovska State Academy of Civil Engineering 
and Architecture.
E-mail: Golovkoyuliya3@gmail.com 
3 Department of Accounting, Economics and Human Resources Management of Enterprise, Prydniprovska State Academy of Civil Engineering 
and Architecture.
E-mail: denalli.com.ua@gmail.com

DOI: http://dx.doi.org/10.30525/2256-0742/2017-3-5-183-187

THE INFLUENCE OF THE ENTERPRISE LIFE CYCLE  
ON THE EFFICIENCY OF INVESTMENT

Viktor Koval1
Odessa Institute of Trade and Economics of Kyiv National University of Trade and Economics, Ukraine

Yuliia Prymush2, Viktoriia Popova3
Prydniprovska State Academy of Civil Engineering and Architecture, Ukraine

Abstract. The article presents results of the study of relations between the enterprise life cycle and the efficiency of 
investment in the context of dynamic, rapid changes in the conditions of enterprises operation and development. It 
is determined that one of the main factors of success is the introduction of innovative technologies in the production 
process, which cannot be carried out without attracting investments. It is the investment activity of enterprises that 
determines the dynamics of their development, the level of competitiveness and the growth of productive resources, 
which affects the efficiency of their activities. It is proved that it is relevant to take into account the possible negative 
effects of the influence of factors divergence. The purpose of the study is to analyse possibilities of determining the 
impact of life cycle stages on the efficiency of investing in an enterprise. The methodological basis of the research is 
grounded on the general scientific methods of dialectics, observation, measurement, and formalization; methods 
of the system and statistical analysis. In particular, to determine the influence of internal factors on the indicators 
of the efficiency of investment activity of the enterprise at the stages of its life cycle, deterministic factor analysis is 
applied; methods of systematization and synthesis, analysis and synthesis are also used. It is determined that the 
construction industry plays a special role in the national economy since its development creates a synergistic effect 
for the development of other industries, increases the standard of living of the society through solving certain socio-
economic problems. The analytical data of construction enterprises activity in Dnipropetrovsk and Odesa regions 
of Ukraine became the basis for the approbation of the proposed approach. The use of the life cycle model of the 
enterprise, which includes the stage of growth (slow and rapid growth, stability stage) and the stage of the fall (slow 
and rapid fall, crisis stage), is substantiated. The features of investment activity according to the given stages of the 
life cycle of the enterprise are considered. It is determined that the growth and fall stages have a different effect on 
the nature of the investment indicators, which depends on certain factors. Further research is aimed at improving 
the mechanism of monitoring the environment in order to determine the force of factors influence on investment 
activity and implementation of preventive measures. The lack of a rapid reaction of the company to changes in 
the environment can lead to a crisis state of management, which determines the high degree of significance of 
adaptation for any life cycle of the enterprise.

Key words: enterprise life cycle, investment, stages of growth and fall.

JEL Classification: D15, D25

1. Introduction
Transformational changes in the global economy of 

the last decade have significantly changed the economic, 
legal, and social environment of the manufacturing 
sector of any country. There are dynamic, rapidly 
changing unique conditions of enterprises operation 

and development, in which one of the main factors of 
success is the introduction of innovative technologies 
in the production process. In order to meet the current 
world standards, any industry has faced an urgent need 
for innovation and technological change that cannot be 
made without investment. It is the investment activity 



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of enterprises that determines the dynamics of their 
development, the level of competitiveness and the 
growth of productive resources, which then affects the 
efficiency of their activities.

It should be noted that the economic growth of 
enterprises is in certain limit values of the time interval 
associated with the laws of cyclical functioning of 
the economy. The identification of the life cycle stage 
and the assessment of the achieved results at certain 
stages in order to determine the effectiveness of 
investment is objectively necessary for the enterprise, 
regardless of the scale of activity, duration of its life, 
size, ownership, to avoid violations of reliability and 
stability of its functioning. In the conditions of constant 
transformation of the external environment during 
investment, there is a problem of taking into account the 
possible negative consequences of the adverse effects of 
the said environment and the associated uncertainty and 
risk, which affect the reliability of the entire investment 
process. Therefore, the approach to the company as a 
dynamic system and the study of the impact of its life 
cycle stages on the efficiency of investment is highly 
relevant.

2. Review of theory and literature
Regularities and trends of the cyclical development of 

the enterprise, features of its state depending on the stage 
of the life cycle, the issue of determining the nature and 
evaluation of the enterprise life cycle were considered in 
the publications by A.  Alti (2003), A.  Downs (1967), 
B.  Gerasimov, T.  Konovalova, S.  Spiridonov and 
N. Satalkina (2008), K. Cameron and R . Quinn (2001), 
D. Miller and P. Friesen (1984), B. Jovanovic and Glenn 
M. MacDonald, (1994), I. Ivashkovskaya and D. Yanhel 
(2007) and others.

Despite numerous scientific papers devoted to the 
study of the stages of a company life cycle, the theoretical 
foundations of this problem have not yet been fully 
disclosed. There are also a number of unresolved 
issues related to the quantification of the investments 
effectiveness and taking them into account in terms of 
economic substantiation of the investment reliability. 
In the current research of investment effectiveness, 
the stage of enterprise stability is the most frequently 
analysed, while due attention is not paid to the indicators 
of the previous stages and accounting for future stages 
of the cycle. In some cases, the economic substantiation 
of the reliability of investment is not carried out at 
all, while in others, the probabilistic nature of the 
environmental parameters is not considered. Thus, the 
need to determine the impact on the effectiveness 
of investment processes in the various stages of the 
company’s life cycle predetermined the purpose of the 
study, which is to analyse the possibility of defining the 
impact of life cycle stages on the efficiency of investing 
in the enterprise.

3. Data collection  
(data sources and methodology)

The theoretical and methodological basis of the 
research was the scientific works by the leading 
Ukrainian and foreign scientists on the enterprise 
economy, assessment of stages of the life cycle of the 
enterprise, as well as the reliability and investment 
activity of the enterprise. In the process of research, the 
general scientific methods of dialectics, observation, 
measurement, and formalization were used; methods of 
system, statistical and graphical analysis. In particular, 
to determine the influence of internal factors on the 
efficiency indicators of the enterprise investment 
activity at the stages of the life cycle, deterministic 
factor analysis was applied; methods of systematization 
and synthesis, analysis and synthesis were also used. 
The preliminary analysis shows that the construction 
industry plays a special role in the national economy, 
since its development creates a synergistic effect for the 
development of other industries, increases the standard 
of living of society through solving certain socio-
economic problems. This formed the information base 
for the approbation of the proposed approach, analytical 
data on the activity of the construction enterprises of 
Dnipropetrovsk and Odesa oblasts of Ukraine.

4. The theoretical and methodological  
basis of research

One of the main engines of growth and qualitative 
development of the enterprise is its investment activity. 
Due to efficient capital expenditures, the desired 
growth rates are achieved, as well as the return on 
investment. It is obvious that improving the current 
technical equipment of the company will lead to an 
increase in the efficiency of the production process, and 
investment in new products development or improving 
the characteristics of existing goods will strengthen the 
market position of the enterprise, the emergence of 
strong competitive advantages and, consequently, will 
increase the value of the entire business.

According to the results of the analysis and 
generalization of theoretical approaches to the definition 
of the enterprise life cycle, despite a significant number 
of scientific works devoted to the issues of the life 
cycle by both foreign and domestic scientists, it was 
revealed that today there is no a single approach to the 
interpretation of this category. Both the content and the 
choice of alternatives to the life cycle of the enterprise, 
as well as the specific directions of its formation, depend 
on the content entering this concept and criteria 
accepted as a basis.

Category “life cycle” is one of the key economic concepts, 
but the essence of this definition is interpreted by different 
researchers quite broadly, depending on the subject which 
is being explored. The generally accepted definition states 
that “an enterprise life cycle” is a set of stages, which the 



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enterprise passes during the course of its life from creation 
to liquidation. This is explained by the complexity and 
versatility of the life cycle as a phenomenon.

With regard to the research on relations between 
investment and the stages of an enterprise life cycle, most 
of the existing research in this area is focused on assessing 
the reliability of the enterprise as an economic system, 
which is determined by the diagnosis of all levels of 
financial and economic activity of the organization. This 
approach is acceptable for the enterprises at the stage 
of sustainable development of the life cycle trajectory. 
In the case when the company develops a strategic 
development plan and plans appropriate investments, 
there is a problem determining the comprehensive 
reliability of obtaining expected indicators assessing the 
economic efficiency of the future outcome. Very often, 
and this is noted in the literature on the analysis of the 
investments efficiency, there are problems with the 
choice of alternative investment options in comparison 
of their performance indicators, which are known to 
have different dimensions and therefore cannot be 
considered as an additive at different life cycle stages.

It should be noted that none of the existing models 
in economic science allow conducting a complete study 
of the enterprise life cycle, since each enterprise has 
its own individual pace of development, and changing 
the stages of the life cycle depends on a number of 
factors (external environment of the enterprise, branch 
affiliation). For our study, we offer to use the following 
model of the enterprise life cycle identifying: a growth 
stage characterized by slow and rapid growth part, a 
stage of stability; a stagnant phase characterized by a 
slow and rapid fall, and also a stage of a crisis. This choice 
is based on the fact that in this model, in our opinion, 
the basic laws of the enterprise life cycle are the most 
clearly traceable (Strobl  & Kronenberg, 2016).

There are several disadvantages of practical 
application of the methodological approaches existing 
in the economic literature to the definition of stages of 
an enterprise life cycle:
- identification of the stages of the company lifecycle is 
carried out on the basis of one or two indicators, which 
determines the narrow target orientation;
- almost all methods at the final stage of calculation are 
based on methods of expert evaluation;
- none of the approaches consider an enterprise life 
cycle as a combination of a certain ratio and interaction 
of the enterprise;

- each of the methods and approaches has its own 
limitations because there are sectorial and regional 
features of enterprises and it is not always possible to 
give an accurate qualitative and quantitative description 
of a particular life cycle parameter.

All this led to the need for a comprehensive approach 
to assessing the life cycle of a construction company, 
which allows:
- considering an enterprise life cycle as a set of all 
activities of the enterprise, subject to the influence of 
factors of the operational environment of the enterprise;
- taking into account the ability of the company to operate 
at the stages of the life cycle to produce certain results;
- forming an information base for the development of 
appropriate evaluation tools, for example, the matrix of 
determining the stages of the company life cycle by the 
indices of changes in profitability indicators (Table 1) 

As noted in (Cameron and Quinn, 2001; 
Ivashkovskaya and Yanhel, 2007), the change in the 
stages of the company life cycle is determined not by 
the individual values of the selected indicators, but by 
the growth (index) of these indicators. According to the 
purpose of our research, the most interesting for us is 
the characteristic of investment activity according to the 
given stages of the enterprise life cycle.

Stage of growth. One of the rationales for investing 
in the enterprise is associated with the conditional 
transition from the stage of fall to a new cycle of the life 
cycle. First, it is a question of updating the active elements 
of fixed capital (Ivashkovskaya and Yanhel, 2007). 
Their moral aging leads to potential costs that arise as 
a result of the need to introduce new developments and 
qualitatively other means of production. In this case, an 
enterprise must calculate when it will be necessary to 
prematurely change capital assets to their full physical 
deterioration. Thus, a new cycle of a company begins 
precisely from the moment the investment project is 
implemented, for example, such as the replacement of 
the worn equipment or investment in research work.

Innovation is often seen as the starting point of the 
financial cycle of the whole industry (and with it and 
the existing enterprises in the industry). Thus, Boyan 
Jovanovic and Glenn M. McDonald (1994), analysing 
the automotive tires industry in the USA from 1906 to 
1971, using a formal mathematical model, came to the 
conclusion that the enterprises that had first introduced 
new developments in 1910–1920, significantly won in 
growth rates ( Jovanovic and MacDonald, 1994).

Table 1
Matrix identifying the stages of the company life cycle by indexes of changes in profitability indicators

Stage of growth Stages of fall
Index of change in profitability Slow growth Fast growth Stability Slow fall Fast fall Crisis
Operational activity ↑ ↑ ↑ ↓ ↓ ↓
Investment activity ↓ ↑ ↑ ↑ ↓ ↓
Financial activity ↓ ↓ ↑ ↑ ↑ ↓

Source: developed by the authors



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The peculiarity of this stage is also that the 

company has to simultaneously support the growth 
of the production scale and invest in the qualitative 
transformation of business. So A. Alti in his research 
notes that the sensitivity of investment to the cash flow 
is significantly higher for young and growing firms (Alti, 
2003).

Next, the growth stage is characterized by an increase 
in the investment stability of the organization, increase 
in the number of potential investors by reducing 
uncertainty and increasing monitoring of risks. 
Increasing risk control leads to a lowering of the threshold 
of profitability and, therefore, requirements for the 
minimum efficiency of the projects under consideration. 
It expands the range of affordable investment projects 
and accelerates their implementation.

Stage of fall. Firstly, the value of the enterprise at 
this stage is formed entirely current (already existing 
assets). Secondly, enterprises in the downturn stage 
must have an excessive share of debt that is to be over-
levered, which is equivalent to becoming bankrupt 
in the future. Therefore, it can be assumed that the 
deterioration of the enterprise development prospects 
will undoubtedly have a negative impact on investment 
policy: indirectly by reducing sources of funding and 
directly by concentrating investments to restore or 
maintain market positions. However, one should not 
forget that under effective management, the company 
will not stay on the stage for a long time and will begin 
to take all necessary steps to revive the business, which 
in turn will require additional capital investments.

It should be noted that the growth and fall stages 
have a different effect on the nature of certain financial 
indicators of investment. It depends, first of all, on the 
nature of the production process, the organization of 
management, the degree of uncertainty, prospects of 
development, and many other factors.

5. The approbation of the proposed approach
As a result, analysing the current economic state of 

the Ukrainian construction market, we selected ten 
companies from Dnipropetrovsk and Odesa regions that 
represent the small and medium business of the regions. 
The influence of external factors of the enterprises’ direct 
and indirect environments on their life cycle has been 
studied (a detailed list of factors is given in (Prymush, 
2013). To determine the degree of influence of the 
selected external factors on the types of activities of the 
enterprises under investigation, an elasticity coefficient 
was applied, which allowed obtaining the data sensitivity 
the efficiency indicators of the enterprises investment 
activity at the stages of the life cycle to the influence of 
the external environment (in the case of a change in the 
value of the external factor by 1%): 

ÊÅ

Ð Ð

Ð
X X
X

x t x t

x t

t t

t

=

−

−

−

−

−

−

( ) ( )

( )

1

1

1

1

,                                       (1)

where, КЕ – elasticity coefficient; 
P(х)t,P(х)t-1 – profitability indicator х enterprise activity 

at stages of the life cycle in the periods t and t-1, %;
Xt, Xt-1 – external factor of the environment of the 

enterprise operation in periods t and t-1, %;
P(х), X>0.
As a result of the calculations of the influence of 

external factors on the performance indicators of the 
investment activity of the construction enterprises in 
the Dnipropetrovsk and Odesa regions at the stages of 
the life cycle, it was determined which ones of the list 
have the greatest influence (Table 2). When calculating 
for more substantiated conclusions, the overall elasticity 
coefficients (for 2010–2016) for each external factor 
for selected enterprises were calculated as a geometric 
average.

Table 2
The value of elasticity coefficients for the investment activity of construction enterprises  
of the Dnipropetrovsk region

№ The external factor of influence 
Enterprise number 

1 2 3 4 5 6 7 8 9 10
Factors of the immediate environment Inverse dependence

1
Index of the number of buildings and 
engineering structures of unfinished 
construction (%, before the previous year)

0,69 0,73 0,39 1,35 0,64 0,99 0,93 0,69 1,50 0,76

2
Index of prices of manufacturers of machinery 
and equipment (%, before the previous year)

2,28 2,40 2,0 1,57 1,37 2,06 2,45 2,09 1,89 1,78

3
The investment index in residential construction 
(%, before the previous year)

1,58 1,26 1,68 1,67 1,26 1,78 1,46 1,78 1,57 1,46

Factors of the indirect environment Direct dependence

4
Index of growth of the average official rate of the 
national currency to foreign currencies

1,38 1,0 1,32 1,65 0,86 1,48 1,10 1,42 1,75 0,96

5
The cost of long-term loans for economic 
entities, %

0,50 0,64 0,32 0,52 0,32 0,60 0,54 0,32 0,42 0,22

Source: calculated by the authors



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The results of analysing the influence of external 

factors on the investment activity of construction 
enterprises of Dnipropetrovsk and Odesa regions at 
different stages of their life cycle identify the factors of 
the immediate functioning environment as being the 
most affluent; in particular:
- a significant elastic bond is observed in both regions 
between the indicator of the efficiency of enterprises 
investment activity and the prices of machinery and 
equipment manufacturers. Taking into account the fact 
that this is inverse dependence, the increase in prices 
will contribute to reducing the demand of construction 
enterprises for these funds, and as a result of the aging of 
non-current assets and a drop in profits from the enterprise 
investment activity;
- a certain connection is observed between the indicators 
of the efficiency of enterprises investment activity and 
indicators of investment in housing construction. This is 
determined with the fact that investment increase in fixed 
assets of construction enterprises leads to an increase in 
non-current assets, expansion of production volumes, 
sales of construction products and profit from investment 
activity of a construction company;
- significant feedback is observed between the indicator 
of the number of buildings and facilities under construction 
and the indicator of the investment activity effectiveness. 
This is primarily reflected in the fact that an increase in the 
number of uncompleted construction decreased sales of 
construction products and resulted in reduced investments, 
as the company reduces the volume of operations.

6. Conclusions
To sum up, it should be noted that the definition 

of the current phase of the life cycle is a complex 
process, as an enterprise may not be on the first helix 
of its development. It is likely that the company has 
already undergone one or more transformations in its 
development. This problem is levelled by conducting 
a dynamic analysis of the enterprise development 
from the initial stage – the stage of origin. In this case, 
you can get a comprehensive idea not only about the 
financial status of the subject of economic activity at 
each particular moment but also about the temporary 
evolution of the entire production process. It is 
worth noting that in order to model the empirical 
dependence, especially on a large studied group, it is 
practically impossible to detect fake stages of growth.

On the other hand, changes occurring in the external 
environment affect the life cycle of an enterprise by 
causing a significant inconsistency of the internal 
environment with external requirements. Therefore, 
further research will be aimed at improving the 
mechanism of monitoring the environment in order 
to determine the force of influence of the factors on 
investment activity and implementation of preventive 
measures. The lack of a rapid reaction of the company 
to the changes in the environment can lead to a crisis 
state of management, which determines the high 
degree of significance of adaptation for any enterprise 
life cycle.

References:
Alti, Aydogan (2003). How sensitive is investment to cash flow when financing is frictionless? The Journal of 
Finance, 58(2): 707-722. 
Downs, A. (1967). The life Circle of Bureaus. In A. Downs (Ed.), Inside Bureaucracy. San Francisco: Little, Brown, 
296-309.
Gerasimov, B.I., Konovalova, T.M., Spiridonov, S.P., & Satalkina, N.I. (2008). Comprehensive economic analysis 
of the financial and economic activities of the organization. Tambov: Publishing house of Tamb. state. tech. 
university, 160.
Jovanovic, Boyan, & MacDonald, Glenn M. (1994). The Journal of Political Economy, 102 (2):  322-347. 
Cameron, Kim S., & Quinn, Robert E. (2001). Diagnosis and change in organizational culture. SPb. y dr.: 
Pyter, 320.
Miller, D. A ., & Friesen, P. H. (1984). Longitude study of the corporate life cycle. Management science, 30: 
1161-1183.
Prymush, Yu. S. (2013). Estimation of the influence of external factors on the life cycle of construction enterprises. 
Ekonomichnyy prostir. 77, 201-213. 
Strobl, Andreas, & Kronenberg, Christopher (2016). Entrepreneurial networks across the business life cycle: the 
case of Alpine hospitality entrepreneurs. International Journal of Contemporary Hospitality Management,(28) 6: 
1177-1203, https://doi.org/10.1108/IJCHM-03-2014-0147
Ivashkovskaya, I. V., & Yanhel, D. O. (2007). The organization's life cycle and the aggregate growth rate. 
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