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The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity

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  • Christopher F Baum

    ()
    (Boston College
    DIW Berlin)

  • Mustafa Caglayan

    (Heriot-Watt University)

  • Oleksandr Talavera

    ()
    (University of Sheffield)

Abstract

The paper explores factors that lead to accumulation or decumulation of firms' cash reserves. In particular, we empirically examine whether additional future fixed capital and R&D investment expenditures induce firms to change their liquidity ratio while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK and German firms, we find that firms in all three countries make larger adjustments to cash holdings when they plan additional future R&D rather than fixed capital investment expenditures. This behavior is particularly prevalent among financially constrained firms.

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Bibliographic 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
Date of revision: 23 Jul 2012
Publication status: published, Review of International Economics, 21:3, 459-474, 2013
Handle: RePEc:boc:bocoec:712

Note: previously circulated as "Corporate Liquidity Management and Future Investment Expenditures"
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Keywords: cash holdings; fixed investment; R&D investment; dynamic panel regressions;

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References

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Cited by:
  1. Christopher F Baum & Mustafa Caglayan & Oleksandr Talavera, 2012. "R&D Expenditures and Geographical Sales Diversification," Boston College Working Papers in Economics 794, Boston College Department of Economics, revised 12 Nov 2012.

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