Increase in Cash Holdings: Pervasive or Sector-Specific?
30 Pages Posted: 1 Feb 2015
Date Written: October 1, 2013
We examine the difference in cash holdings between high-tech and non-high-tech firms from 1974 to 2007. The average cash-to-assets ratio of non-high-tech firms remained stable throughout the period. In contrast, the average cash ratio of high-tech firms more than tripled from 1980 to 2007. This difference in cash trends can be explained by the difference in changing firm characteristics in these two sectors. This is a consequence of high-tech new listings, whose changing nature and increasing proportion in the sector over the past three decades have caused the population characteristics in the high-tech sector to tilt toward those typical of firms that hold more cash. These empirical results are consistent with theoretical results that indicate that high-tech firms should hold more cash and companion research that shows that the marginal value of a dollar of cash is higher for high-tech than nonhigh-tech firms and has increased since 1990.
Keywords: cash holdings; new listings; high-tech
JEL Classification: G30, G32
Suggested Citation: Suggested Citation