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Innovation and Corporate Cash Holdings in the Era of Globalization
by Konrad Adler, JaeBin Ahn, and Mai Chi Dao

Series:Working Paper No. 19/17
ISBN 9781484392164
Code: #WPIEA2019017

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
62 pages
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We document a broad-based trend in rising cash holdings of firms across major industrialized countries over the last two decades, a trend that is most pronounced for firms engaged strongly in R&D activities. Our contributions to the literature are twofold. First, we develop a simple model that brings together the insights from modern trade theory (Melitz, 2003) with those of contract theory in corporate finance (Holmström and Tirole, 1998) to show that increased openness to trade can result in rising returns to innovation and in turn greater demand for cash as firms insure against innovation-induced liquidity risk. Second, we derive sharp empirical predictions and find supporting evidence for them using firm-level data across major G7 countries during 1995-2014, a period that saw an unprecedented rise in globalization and business innovation.
Innovation and Corporate Cash Holdings in the Era of Globalization
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 124304 Added: 2019.1.26