(Non-)Precautionary Cash Hoarding and the Evolution of Growth Firms

Abstract

We analyze whether growth firms should delay current investment to hoard cash in order to reduce dilution from external financing. This hoarding motive is the natural counterpart to saving cash as a precaution to help secure funding for future investment opportunities. However, the two motives lead to fundamentally different implications for hoarding and for how cash interacts with key financial and investment decisions. In particular, our paper contributes to understanding why firms choosing private over public financing hoard less, and why product market competition has an ambivalent impact on the public-private choice.

Keywords: cash hoarding; cash holdings; public versus private financing; growth firms; competition; real options

JEL Classification: G31, D92, G32