The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity

Christopher Baum, Mustafa Caglayan () and Oleksandr Talavera ()

No 712, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: The paper explores factors that lead to accumulation or decumulation of firms' cash reserves. In particular, we empirically examine whether additional future fixed capital and R&D investment expenditures induce firms to change their liquidity ratio while considering the role of market imperfections. Implementing a dynamic framework on a panel of US, UK and German firms, we find that firms in all three countries make larger adjustments to cash holdings when they plan additional future R&D rather than fixed capital investment expenditures. This behavior is particularly prevalent among financially constrained firms.

Keywords: cash holdings; fixed investment; R&D investment; dynamic panel regressions (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2009-09-23, Revised 2012-07-23
New Economics Papers: this item is included in nep-bec
Note: previously circulated as "Corporate Liquidity Management and Future Investment Expenditures"
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Citations: View citations in EconPapers (5)

Published, Review of International Economics, 21:3, 459-474, 2013

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Related works:
Journal Article: The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:712

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