Cash holdings and R&D smoothing Brown, James Petersen, Bruce Brown, James
dc.contributor.department Finance 2018-02-19T02:25:32.000 2020-06-30T03:57:58Z 2020-06-30T03:57:58Z Sat Jan 01 00:00:00 UTC 2011 2011-06-01
dc.description.abstract <p>The sharp increase in R&D investment in recent decades has important but unexplored implications for corporate liquidity management. Because R&D has high adjustment costs and is financed with volatile sources, it is very expensive for firms to adjust the flow of R&D in response to transitory finance shocks. The main contribution of this paper is to directly examine whether firms use cash reserves to smooth their R&D expenditures. We estimate dynamic R&D models and find that firms most likely to face financing frictions rely extensively on cash holdings to smooth R&D. In particular, our estimates suggest that young firms used cash holdings to dampen the volatility in R&D by approximately 75% during the 1998–2002 boom and bust in equity issues. Firms less likely to face financing frictions appear to smooth R&D without the use of costly cash holdings. Our findings provide new insights into the value of liquidity and the financing of intangible investment, and suggest that R&D smoothing with cash reserves is now important for understanding cash management for a substantial fraction of publicly traded firms.</p>
dc.description.comments <p>This is accepted manuscript from <em>Journal of Corporate Finance</em>, 2011, 17(3); 694-709. DOI: <a href="" target="_blank">10.1016/j.jcorpfin.2010.01.003</a>. Posted with permission.</p>
dc.format.mimetype application/pdf
dc.identifier archive/
dc.identifier.articleid 1010
dc.identifier.contextkey 11047611
dc.identifier.s3bucket isulib-bepress-aws-west
dc.identifier.submissionpath finance_pubs/17
dc.language.iso en
dc.source.bitstream archive/|||Fri Jan 14 21:11:59 UTC 2022
dc.source.uri 10.1016/j.jcorpfin.2010.01.003
dc.subject.disciplines Business Law, Public Responsibility, and Ethics
dc.subject.disciplines Corporate Finance
dc.subject.disciplines Finance and Financial Management
dc.subject.disciplines Strategic Management Policy
dc.subject.keywords Cash holdings
dc.subject.keywords R&D
dc.subject.keywords Value of liquidity
dc.subject.keywords Investment smoothing
dc.title Cash holdings and R&D smoothing
dc.type article
dc.type.genre article
dspace.entity.type Publication
relation.isAuthorOfPublication ac67180a-d497-41fc-beaf-75e4f0244de3
relation.isOrgUnitOfPublication e2432527-158f-465f-8301-f4ab4c262f9b
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