Innovative Firms’ Cash Needs and Country-level Institutional Environments

65 Pages Posted: 15 Aug 2015 Last revised: 21 Oct 2019

See all articles by Fengfei Li

Fengfei Li

Deakin University - Faculty of Business and Law

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: October 20, 2019

Abstract

Analyzing innovative firms’ patent and financial data in 23 countries over 1990-2012, we find that more innovative firms hoard more cash for technology competition and opportunities. Our instrumental variable regression analysis based on the patent rights index supports a causal interpretation for such a pattern. Innovative firms’ cash needs are more pronounced in countries with less developed financial markets, in countries with institutions and infrastructures more conducive to innovation, as well as in more competitive industries. This pattern is also stronger for high-tech industries, for industries that are more dependent on external financing, as well as for firms that are more financially constrained. Lastly, we find that innovative firms with higher cash holdings invest more in future R&D and generate more patents.

Keywords: innovation; cash holdings; patents; R&D

JEL Classification: F20; G32; G15; O31

Suggested Citation

Li, Fengfei and Lin, Tse-Chun, Innovative Firms’ Cash Needs and Country-level Institutional Environments (October 20, 2019). Available at SSRN: https://ssrn.com/abstract=2643536 or http://dx.doi.org/10.2139/ssrn.2643536

Fengfei Li (Contact Author)

Deakin University - Faculty of Business and Law ( email )

Burwood, Victoria 3215
Australia

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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