The Impact of Competition and Time-to-Finance on Corporate Cash Holdings
107 Pages Posted: 10 Jul 2017 Last revised: 9 Oct 2019
Date Written: August 18, 2019
This paper empirically documents how the interaction between competition and time frictions in capital markets impacts firms' cash management decisions. Using the introduction of the U.S. Securities Offering Reform in 2005 as a quasi-natural experiment, we show that a shorter time-to-finance leads to a reduction in corporate cash holdings. This effect is significantly stronger for firms that are exposed to preemption risk. Furthermore, patents mitigate the risk of preemption and the effect of a reduction in time-to-finance on cash holdings is strongest for unconstrained firms.
Keywords: cash holdings; time-to-finance; competition; real investment; capital market frictions
JEL Classification: G30, G32, G35
Suggested Citation: Suggested Citation