Real estate depreciation and cash policy for innovative firms

Zhao Rong, Fei Leng, Jun Ma and Jinlan Ni

International Review of Financial Analysis, 2024, vol. 95, issue PB

Abstract: Real estate price drop during the financial crisis period tends to weaken firms' borrowing capacity. To buffer the adverse impact of financial shock on R&D activities, innovative firms turn to their internal cash reserves to substitute external credit. By examining U.S. listed innovative firms during 2008–2012, we find that a $1 decrease in real estate value leads $0.70 decrease in cash holdings of innovative firms. Additionally, we observe that the R&D buffering effect is more pronounced among financially constrained firms and firms with more pre-crash cash reserves. In contrast, the buffering effect is insignificant among non-innovative firms where sustaining R&D expenditure is not an urgent need.

Keywords: Cash holdings; Real estate depreciation; Innovative firms; Financial constraints (search for similar items in EconPapers)
JEL-codes: D21 G31 O31 R30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924003843

DOI: 10.1016/j.irfa.2024.103452

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