 Which investments do firms protect? Liquidity management and real adjustments when access to finance falls sharplyJames Brown () and Bruce Petersen Journal of Financial Intermediation, 2015, vol. 24, issue 4, 441-465 Abstract: We study how firms engaged in both R&D and fixed investment manage liquidity and adjust real investment during the recent financial crisis. Among firms with positive R&D expenditures, cuts to fixed investment in the crisis are typically far more severe than cuts to R&D. These firms allocate cash reserves to buffer R&D but do not use cash to protect fixed investment. Some firms appear to go so far as to allow the stock of fixed assets to fall to stabilize R&D. The use of cash holdings and fixed assets to protect R&D is particularly strong among firms most likely to face financing frictions at the start of the crisis. We only find evidence that firms use cash to buffer fixed investment when we expand the sample to include firms with no R&D spending to compete for funds. Our study provides direct evidence on the real effects of liquidity management, highlights a key benefit of precautionary cash reserves, and illustrates the adjustments firms make to navigate a financial crisis. Keywords: Liquidity management; Value of cash; Financial flexibility; R&D; Fixed investment; Financial crisis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:24:y:2015:i:4:p:441-465 DOI: 10.1016/j.jfi.2014.03.002 Access Statistics for this article Journal of Financial Intermediation is currently edited by Elu von Thadden More articles in Journal of Financial Intermediation from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.