Corporate cash holdings and total factor productivity – A global analysis

Chong-Chuo Chang and Hui-Wen Tang

The North American Journal of Economics and Finance, 2021, vol. 55, issue C

Abstract: Studies concerning total factor productivity (TFP) have investigated the effect of TFP on economic growth from a country-level perspective, which is a critical issue in the macroeconomics field. Few studies have examined how corporate financial decisions influence TFP from a firm-level perspective. Specifically, no extant studies have investigated how cash holdings affect firm productivity. This study utilizes data for firms in 65 countries during 1993–2017 to investigate the effect of cash holdings on TFP from a corporate perspective. The findings show that firms with higher cash holdings can enhance TFP. The results hold after considering endogenous problems, financial constraints, financial crises, corporate governance, institutional quality, and financial development as well as various robustness tests. Furthermore, we examine whether firms consistently invest their cash holdings into research and development (R&D) expenditures enhances firm productivity. The evidence indicates that higher cash holdings lead to steady increases in R&D expenditure, which improves firms’ TFP.

Keywords: Cash holdings; Corporate governance; Financial crisis; Research and development; Total factor productivity (search for similar items in EconPapers)
JEL-codes: G01 G18 G30 G32 G38 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820302035

DOI: 10.1016/j.najef.2020.101316

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