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First Mover Advantage, Time to Finance, and Cash Holdings

49 Pages Posted: 25 May 2017  

Liang Ma

University of South Carolina - Darla Moore School of Business

Antonio S. Mello

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Youchang Wu

University of Oregon - Lundquist College of Business

Date Written: May 24, 2017

Abstract

We examine the strategic role of cash in a two-stage competition model featuring a first mover advantage in product markets and time delays in outside financing. We show that the first mover advantage, time to finance, competitive pressure, high profitability, and fast arrivals of investment opportunities reinforce each other to generate large cash holdings, and amplify the sensitivity of cash holdings to the cash carrying cost. The equilibrium relation between cash holdings and industry concentration is ambiguous. Our model provides an explanation for the large variation in cash holdings across industries and the increase in cash holdings in recent decades.

Keywords: First Mover Advantage, Time to Finance, Cash Holdings, Competition

JEL Classification: G30, G32

Suggested Citation

Ma, Liang and Mello, Antonio S. and Wu, Youchang, First Mover Advantage, Time to Finance, and Cash Holdings (May 24, 2017). Available at SSRN: https://ssrn.com/abstract=2973581 or http://dx.doi.org/10.2139/ssrn.2973581

Liang Ma

University of South Carolina - Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States
803-777-6366 (Phone)

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

Antonio S. Mello

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-263-3423 (Phone)
608-265-4195 (Fax)

Youchang Wu (Contact Author)

University of Oregon - Lundquist College of Business ( email )

1280 University of Oregon
Eugene, OR 97403
United States

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