Financial Constraints, R&D Investment, and the Value of Cash Holdings

Laurence Booth (), Christos Ntantamis and Jun Zhou
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Laurence Booth: Rotman School of Management, University of Toronto, 105 St George Street, Toronto, ON, Canada, M5S 3E6, Canada
Jun Zhou: Rowe School of Business, Dalhousie University, 6100 University Avenue, Halifax, NS, Canada, B3H 4R2, Canada

Quarterly Journal of Finance (QJF), 2015, vol. 05, issue 04, 1-24

Abstract: Existing studies document that cash holdings are more valuable for financially constrained firms than for financially unconstrained firms. We investigate whether the relation between financial constraints and the value of corporate cash holdings varies across firms with different engagement in research and development activity. Among firms with R&D investment, the marginal value of cash is significantly higher for financially constrained firms than unconstrained ones, whereas this difference is weak among firms without R&D investment. Our findings are robust to alternative measures of financial constraints and alternative methods to define R&D intensity. Our study extends the cash literature by showing that the value of cash holdings is affected by the status of financial constraints and the nature of investment jointly.

Keywords: Value of cash; research and development; financial constraints; investment (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S2010139215500111

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