Competition, Cash Holdings, and Financing Decisions

Erwan Morellec, Boris Nikolov and Francesca Zucchi
Additional contact information
Erwan Morellec: Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
Boris Nikolov: University of Lausanne; Swiss Finance Institute
Francesca Zucchi: Federal Reserve Board

No 13-72, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We use a dynamic model of cash management in which firms face competitive pressure to show that competition increases corporate cash holdings as well as the frequency and size of equity issues. In our model, these effects are driven by small, financially constrained firms, in contrast with the theories based on strategic interactions in which large leaders or incumbents value more cash. We test these predictions on Compustat firms for the period 1980-2007 and show that product market competition has first order effects on the cash holdings and financing decisions of constrained firms, in ways consistent with our theory.

Keywords: product market competition; cash holdings; financing decisions (search for similar items in EconPapers)
JEL-codes: G13 G14 G31 G34 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2013-12
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1364009 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1372

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().