Publications
Publications
- 2017
- HBS Working Paper Series
Firm Selection and Corporate Cash Holdings
By: Juliane Begenau and Berardino Palazzo
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.
Keywords
Citation
Begenau, Juliane, and Berardino Palazzo. "Firm Selection and Corporate Cash Holdings." NBER Working Paper Series, No. 23249, March 2017. (Revised February 2017. Harvard Business School Working Paper, No. 16-130, May 2016)