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Financial Constraints, R&D Investment, and the Value of Cash Holdings

Author

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  • Laurence Booth

    (Rotman School of Management, University of Toronto, 105 St George Street, Toronto, ON, Canada, M5S 3E6, Canada)

  • Christos Ntantamis

    (Department of Economics, Mount Allison University, 144 Main Street, Sackville NB, Canada, E4L 1A7, Canada)

  • Jun Zhou

    (Rowe School of Business, Dalhousie University, 6100 University Avenue, Halifax, NS, Canada, B3H 4R2, Canada)

Abstract

Existing studies document that cash holdings are more valuable for financially constrained firms than for financially unconstrained firms. We investigate whether the relation between financial constraints and the value of corporate cash holdings varies across firms with different engagement in research and development activity. Among firms with R&D investment, the marginal value of cash is significantly higher for financially constrained firms than unconstrained ones, whereas this difference is weak among firms without R&D investment. Our findings are robust to alternative measures of financial constraints and alternative methods to define R&D intensity. Our study extends the cash literature by showing that the value of cash holdings is affected by the status of financial constraints and the nature of investment jointly.

Suggested Citation

  • Laurence Booth & Christos Ntantamis & Jun Zhou, 2015. "Financial Constraints, R&D Investment, and the Value of Cash Holdings," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(04), pages 1-24, December.
    • Handle: RePEc:wsi:qjfxxx:v:05:y:2015:i:04:n:s2010139215500111
    DOI: 10.1142/S2010139215500111
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    References listed on IDEAS

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    Cited by:

    1. Yang Gao & Yu Wang & Chien-Chi Chu & Sang-Bing Tsai & Xiaomin Du & Quan Chen, 2018. "Nonlinear Effect of Financial Efficiency and Financial Competition on Heterogeneous Firm R&D: A Study on the Combined Perspective of Financial Quantity Expansion and Quality Development," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    2. Kao-Yi Shen & Min-Ren Yan & Gwo-Hshiung Tzeng, 2017. "Exploring R&D Influences on Financial Performance for Business Sustainability Considering Dual Profitability Objectives," Sustainability, MDPI, vol. 9(11), pages 1-21, October.

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