Firm selection and corporate cash holdings

Juliane Begenau and Berardino Palazzo

Journal of Financial Economics, 2021, vol. 139, issue 3, 697-718

Abstract: Since the early 1980s, the composition of US public firms has progressively shifted toward less profitable firms with high growth potential (Fama and French, 2004). We estimate a dynamic corporate finance model to quantify the role of this selection mechanism for the secular trend in cash holdings among US public firms. We find that an increase in the precautionary savings motive—primarily driven by the decline in initial profitability among R&D-intensive new lists—explains about 50% of the upward trend in cash holdings. This selection mechanism also explains part of the upward trend in sales growth volatility.

Keywords: Cash holdings; R&D firms; New lists; Firm selection (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X20302592
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Firm Selection and Corporate Cash Holdings (2017)
Working Paper: Firm Selection and Corporate Cash Holdings (2015)
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:eee:jfinec:v:139:y:2021:i:3:p:697-718

DOI: 10.1016/j.jfineco.2020.09.001

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().