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

Author

Listed:
  • 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.

Suggested Citation

  • Christopher F Baum & Mustafa Caglayan & Oleksandr Talavera, 2009. "The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity," Boston College Working Papers in Economics 712, Boston College Department of Economics, revised 23 Jul 2012.
  • Handle: RePEc:boc:bocoec:712
    Note: previously circulated as "Corporate Liquidity Management and Future Investment Expenditures"
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    References listed on IDEAS

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    Cited by:

    1. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2016. "R&D Expenditures and Geographical Sales Diversification," Manchester School, University of Manchester, vol. 84(2), pages 197-221, March.
    2. Andrea Mercatanti & Taneli Mäkinen & Andrea Silvestrini, 2017. "Investment decisions by European firms and financing constraints," Temi di discussione (Economic working papers) 1148, Bank of Italy, Economic Research and International Relations Area.
    3. Ferreira, Paulo Jorge Silveira & Dionísio, Andreia Teixeira Marques, 2016. "What are the conditions for good innovation results? A fuzzy-set approach for European Union," Journal of Business Research, Elsevier, vol. 69(11), pages 5396-5400.

    More about this item

    Keywords

    cash holdings; fixed investment; R&D investment; dynamic panel regressions;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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