Firm Selection and Corporate Cash Holdings

Juliane Begenau and Berardino Palazzo

No 23249, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Among stock market entrants, more firms over time are R&D–intensive with initially lower profitability but higher growth potential. This sample-selection effect determines the secular trend in U.S. public firms’ cash holdings. A stylized firm industry model allows us to analyze two competing changes to the selection mechanism: a change in industry composition and a shift toward less profitable R&D–firms. The latter is key to generating higher cash ratios at IPO, necessary for the secular increase, whereas the former mechanism amplifies this effect. The data confirm the prominent role played by selection, and corroborate the model’s predictions.

JEL-codes: E3 G1 G3 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-mac
Note: AP CF EFG
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Citations: View citations in EconPapers (26)

Published as Juliane Begenau & Berardino Palazzo, 2020. "Firm Selection and Corporate Cash Holdings," Journal of Financial Economics, .

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Journal Article: Firm selection and corporate cash holdings (2021)
Working Paper: Firm Selection and Corporate Cash Holdings (2015)
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