Increase in Cash Holdings: Pervasive or Sector-Specific?

30 Pages Posted: 1 Feb 2015

See all articles by Laurence David Booth

Laurence David Booth

University of Toronto - Rotman School of Management

Jun Zhou

Dalhousie University

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

Booth, Laurence David and Zhou, Jun, Increase in Cash Holdings: Pervasive or Sector-Specific? (October 1, 2013). Frontiers in Finance and Economics, Vol. 10, No. 2, 31-62, 2013, Available at SSRN:

Laurence David Booth (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4

Jun Zhou

Dalhousie University ( email )

6100 University Avenue
Halifax, Nova Scotia B3H 4R2

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