Cash Balance Management in Innovative Companies

Abstract

Since the 1980s, innovative companies all over the world have been holding a substantial cash balance on their books dueto transactional, preventive, agency, tax-related and macroeconomic motives and by limitations in capital availability dueto information asymmetry. Our research examines the determinants that influence the analysis of cash holdings of hightechand non-high-tech companies.
 Financial information for 38,386 unique companies was obtained from the 2009–2017 Compustat database. The final sampleversion comprised 12,083 companies, of which 2,909 were innovative. We used the panel regression method, selectingthe appropriate calculation model and a number of proxy variables.
 Our research confirmed the existence of innovative companies’ significant cash holdings. Adding a macroeconomic factorvariable (GDP growth) to the research model was justified for innovative companies only. In spite of the insignificant impactof GDP, increased GDP growth resulted in a decreased cash ratio for innovative companies. The authors also revealthe insignificance of R&D expenditures for innovative companies and prove that ranking companies by the amount ofR&D expenditures and using this variable as innovation proxy was inexpedient. In addition, the authors confirm a positiverelationship between growth opportunities, company size and cash ratio and a negative relationship between dividendpayout and the amount of cash holdings.
 An understanding of the reasons for cash accumulation facilitates prudential management of cash holdings in companies.This paper contributes new evidence to the study of corporate cash holding, focusing specifically on innovative companies,which have not been examined separately in the past.