Firm Selection and Corporate Cash Holdings

Berardino Palazzo and Juliane Begenau
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Juliane Begenau: Harvard Business School

No 1047, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: This paper proposes a novel explanation for the secular increase in the cash holdings of public U.S. firms. We show that this fact results from a change in the composition of firms. Since the end of the 70s, the proportion of new economy firms that engage in R&D has increased dramatically. These types of firms enter the Compustat sample with more cash holdings. In contrast, old economy firms' cash holdings have remained stable over time. We use a firm industry model with endogenous entry in the stock market to explore three competing hypothesis: 1) a structural change in the composition of U.S. firms; 2) lower entry costs/better IPO conditions for new economy firms; 3) institutional reasons such as a change in the tax benefit of R&D activities.

Date: 2015
New Economics Papers: this item is included in nep-dge and nep-sbm
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Firm selection and corporate cash holdings (2021)
Working Paper: Firm Selection and Corporate Cash Holdings (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:1047

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