R&D Dynamics and Corporate Cash Saving

Xiaodan Gao and Jake Zhao

Review of Economic Dynamics, 2022, vol. 43, 263-285

Abstract: High-tech firms hold substantial cash reserves. We build a parsimonious industry equilibrium model with endogenous productivity to study high-tech firms' cash-saving policy and explore its role in innovation. The model incorporates multiple well-cited explanations in the literature and examines which factors are the main determinants of high-tech firms' saving behavior. We find that innovation uncertainty is the major driver, followed by knowledge spillover and financial frictions. Market competition has non-monotonic effects, while R&D adjustment costs play a relatively minor role. We also find that even if the productivity process is transitory, firms manage to save enough to reduce R&D distortions from financial frictions. (Copyright: Elsevier)

Keywords: Corporate cash saving; R&D investment; R&D adjustment costs; Financial frictions; Knowledge spillover; Innovation uncertainty; Market competition (search for similar items in EconPapers)
JEL-codes: G32 L11 O16 O32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1016/j.red.2021.02.008

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