(Non-)Precautionary Cash Hoarding and the Evolution of Growth Firms
45 Pages Posted: 7 Feb 2014 Last revised: 23 Feb 2018
Date Written: February 17, 2017
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
Suggested Citation: Suggested Citation