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Real estate depreciation and cash policy for innovative firms

Author

Listed:
  • Rong, Zhao
  • Leng, Fei
  • Ma, Jun
  • Ni, Jinlan

Abstract

Real estate price drop during the financial crisis period tends to weaken firms' borrowing capacity. To buffer the adverse impact of financial shock on R&D activities, innovative firms turn to their internal cash reserves to substitute external credit. By examining U.S. listed innovative firms during 2008–2012, we find that a $1 decrease in real estate value leads $0.70 decrease in cash holdings of innovative firms. Additionally, we observe that the R&D buffering effect is more pronounced among financially constrained firms and firms with more pre-crash cash reserves. In contrast, the buffering effect is insignificant among non-innovative firms where sustaining R&D expenditure is not an urgent need.

Suggested Citation

  • Rong, Zhao & Leng, Fei & Ma, Jun & Ni, Jinlan, 2024. "Real estate depreciation and cash policy for innovative firms," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    • Handle: RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924003843
    DOI: 10.1016/j.irfa.2024.103452
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    Keywords

    Cash holdings; Real estate depreciation; Innovative firms; Financial constraints;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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