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Firm Selection and Corporate Cash Holdings

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  • Juliane Begenau
  • Berardino Palazzo

Abstract

Among stock market entrants, more firms over time are R&D–intensive with initially lower profitability but higher growth potential. This sample-selection effect determines the secular trend in U.S. public firms’ cash holdings. A stylized firm industry model allows us to analyze two competing changes to the selection mechanism: a change in industry composition and a shift toward less profitable R&D–firms. The latter is key to generating higher cash ratios at IPO, necessary for the secular increase, whereas the former mechanism amplifies this effect. The data confirm the prominent role played by selection, and corroborate the model’s predictions.

Suggested Citation

  • Juliane Begenau & Berardino Palazzo, 2017. "Firm Selection and Corporate Cash Holdings," NBER Working Papers 23249, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23249
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    References listed on IDEAS

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    Cited by:

    1. Richard T. Thakor & Andrew W. Lo, 2017. "Optimal Financing for R&D-Intensive Firms," NBER Working Papers 23831, National Bureau of Economic Research, Inc.
    2. Xiao, J., 2016. "Corporate Debt Structure, Precautionary Savings, and Investment Dynamics," Cambridge Working Papers in Economics 1666, Faculty of Economics, University of Cambridge.
    3. Safronov, M., 2016. "Experimentation and Learning-by-Doing," Cambridge Working Papers in Economics 1667, Faculty of Economics, University of Cambridge.
    4. Robin Döttling & Tomislav Ladika & Enrico Perotti, 2016. "The (Self-)Funding of Intangibles," Tinbergen Institute Discussion Papers 16-093/IV, Tinbergen Institute.
    5. Malamud, Semyon & Zucchi, Francesca, 2016. "Liquidity, innovation, and endogenous growth," Working Paper Series 1919, European Central Bank.
    6. repec:oup:rcorpf:v:6:y:2017:i:2:p:141-173. is not listed on IDEAS
    7. John R. Graham & Mark T. Leary, 2017. "The Evolution of Corporate Cash," NBER Working Papers 23767, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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