Emerging Tech

Corporate Liquidity Management And Future Investment Expenditures

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Executive Summary

The paper explores factors that lead to accumulation or decumulation of firms' cash reserves. In particular, the authors empirically examine whether additional future fixed capital and R&D investment expenditures induce firms to change their liquidity ratio while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK and German companies, they find that firms make larger adjustments to cash holdings when they plan additional future R&D rather than fixed capital investment expenditures. This behavior is particularly prevalent among financially constrained firms that are heavily involved in R&D activities.

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