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Corporate Liquidity Management and Future Investment Expenditures

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Author Info
Christopher F Baum () (Boston College, DIW Berlin)
Mustafa Caglayan (University of Sheffield)
Oleksandr Talavera () (School of Economics, University of East Anglia)

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Abstract

This paper empirically examines whether additional future fixed capital and R&D investment expenditures induce firms to accumulate cash reserves while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK and German companies, we find that firms make larger additions to cash holdings when they plan additional future R&D rather than fixed capital investment expenditures. This behavior is particularly prevalent among small and non-dividend paying firms that are heavily involved in R&D activities. We also show that the cash flow sensitivity of cash is substantially higher for financially constrained firms than for their unconstrained counterparts in the US and the UK, but only marginally higher in Germany.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 712.

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Date of creation: 23 Sep 2009
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Handle: RePEc:boc:bocoec:712

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Related research
Keywords: cash holdings; fixed investment; R&D investment; dynamic panel regressions;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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    Other versions:
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  11. Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September. [Downloadable!] (restricted)
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    Other versions:
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This page was last updated on 2009-11-23.

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