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

Abstract

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

Moritzen, Mark Raun and Schandlbauer, Alexander, The Impact of Competition and Time-to-Finance on Corporate Cash Holdings (August 18, 2019). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2726857 or http://dx.doi.org/10.2139/ssrn.2726857

Mark Raun Moritzen (Contact Author)

Moody's Analytics ( email )

1 Canada Square
London, E145FA
United Kingdom

Alexander Schandlbauer

University of Southern Denmark ( email )

Campusvej 55
Odense, 5230
Denmark

HOME PAGE: http://sites.google.com/site/alexanderschandlbauer/

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