Asset liquidity and firm innovation
Ly Thi Minh Pham,
Lai Van Vo,
Huong Thi Thu Le and
Danh Vinh Le
International Review of Financial Analysis, 2018, vol. 58, issue C, 225-234
In this paper, we examine the effects of asset liquidity on innovation investments. We show that firms with highly liquid assets tend to invest more in research and development (R&D) and to generate higher numbers of patents and patent citations. These findings hold even after controlling for cash holdings, stock liquidity, and firm characteristics. We hypothesize that the positive effect of asset liquidity on innovation is because this liquidity can help firms reduce the cost of capital. Consistent with this hypothesis, we find that the effect is more pronounced for firms with high cash-flow uncertainty or less capacity to access external equity capital. Overall, our findings show that asset liquidity is an important determinant of innovation.
Keywords: Asset liquidity; Cash flow uncertainty; Cost of capital; Innovation; R&D investment (search for similar items in EconPapers)
JEL-codes: G31 G32 O32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:58:y:2018:i:c:p:225-234
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