Cash Balance Management in Innovative Companies

Mariia  Zarva

doi:10.17323/j.jcfr.2073-0438.16.1.2022.113-135

Mariia Zarva Surgut Transshipment LLC, Moscow, Russia https://orcid.org/0000-0002-6944-5134

DOI: https://doi.org/10.17323/j.jcfr.2073-0438.16.1.2022.113-135

Keywords: cash holding, high-tech companies, non-high-tech companies, R&D expenditures, patents

Abstract

Since the 1980s, innovative companies all over the world have been holding a substantial cash balance on their books due to transactional, preventive, agency, tax-related and macroeconomic motives and by limitations in capital availability due to information asymmetry. Our research examines the determinants that influence the analysis of cash holdings of hightech and non-high-tech companies.

Financial information for 38,386 unique companies was obtained from the 2009–2017 Compustat database. The final sample version comprised 12,083 companies, of which 2,909 were innovative. We used the panel regression method, selecting the appropriate calculation model and a number of proxy variables.Our research confirmed the existence of innovative companies’ significant cash holdings. Adding a macroeconomic factor variable (GDP growth) to the research model was justified for innovative companies only. In spite of the insignificant impact of GDP, increased GDP growth resulted in a decreased cash ratio for innovative companies. The authors also reveal the insignificance of R&D expenditures for innovative companies and prove that ranking companies by the amount of R&D expenditures and using this variable as innovation proxy was inexpedient. In addition, the authors confirm a positive relationship between growth opportunities, company size and cash ratio and a negative relationship between dividend payout and the amount of cash holdings. An understanding of the reasons for cash accumulation facilitates prudential management of cash holdings in companies. This paper contributes new evidence to the study of corporate cash holding, focusing specifically on innovative companies, which have not been examined separately in the past.

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