Product Life Cycles in Corporate Finance

We develop a novel 10-K text-based model of product life-cycles and examine firm investment policies. Conditioning on the life cycle substantially improves the explanatory power of investment-Q models, and reveals a natural ordering of investments driven by the product life cycle. Firms initially focus on R&D, which additionally is sensitive to Q. CAPX emerges second. Acquisitions then arise as firms mature, and divestitures as firms decline. In aggregate, major shifts toward dynamic life cycle stages substantially explain the increase in the explanatory power of Q-models