Innovation Competition, Payouts and Cash Holdings
52 Pages Posted: 6 Dec 2018
Date Written: November 16, 2018
This study investigates how competition in the innovation space affects the likelihood of dividend payment and the level of cash holdings. I construct annual firm innovation descriptions from patent filings’ textual content, and develop a new measure, innovation competition, using all firms’ annual innovation descriptions to evaluate the exogenous changes in the entire innovation space faced by each firm. As innovation competition increases by one standard deviation, the likelihood of dividend payment rises by 0.98 percentage points and cash holdings increases by 1.10 percentage points. Innovation competitions are robust to product market fluidity.
Keywords: patent, textual analysis, innovation, dividend, payout policy, cash holdings
Suggested Citation: Suggested Citation