The cost of innovation: R&D and high cash holdings in U.S. firms

Zhaozhao He and M. Babajide Wintoki

Journal of Corporate Finance, 2016, vol. 41, issue C, 280-303

Abstract: We show that R&D investment explains a significant portion of the increase in the average cash-to-assets ratio of U.S. firms, which more than doubled between 1980 and 2012. In 1980, an average firm held $0.04 in cash for $1.00 of R&D spending, but this had increased to $0.60 by 2012. The increasing sensitivity of cash holdings to R&D investment and the increase in R&D spending of the typical firm explain over 20% of the increase in aggregate cash holdings. Intensified domestic and global competition appears to be an important explanation for the increased propensity of R&D-intensive firms to hoard cash.

Keywords: Cash holdings; Competition; Financing constraints; Financing volatility; R&D Investment (search for similar items in EconPapers)
JEL-codes: G30 G32 O30 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:41:y:2016:i:c:p:280-303

DOI: 10.1016/j.jcorpfin.2016.10.006

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