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(Non-)Precautionary Cash Hoarding and the Evolution of Growth Firms

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  • Arnoud Boot

    (University of Amsterdam, Finance Group, 1018TV Amsterdam, Netherlands; Center for Economic Policy and Research, Washington, DC 20009)

  • Vladimir Vladimirov

    (University of Amsterdam, Finance Group, 1018TV Amsterdam, Netherlands)

Abstract

We analyze whether growth firms should delay current investment to hoard cash in order to reduce dilution from external financing. This hoarding motive is the natural counterpart to saving cash as a precaution to help secure funding for future investment opportunities. However, the two motives lead to fundamentally different implications for hoarding and for how cash interacts with key financial and investment decisions. In particular, our paper contributes to understanding why firms choosing private over public financing hoard less, and why product market competition has an ambivalent impact on the public–private choice.

Suggested Citation

  • Arnoud Boot & Vladimir Vladimirov, 2019. "(Non-)Precautionary Cash Hoarding and the Evolution of Growth Firms," Management Science, INFORMS, vol. 65(11), pages 5290-5307, November.
    • Handle: RePEc:inm:ormnsc:v:65:y:2019:i:11:p:5290-5307
    DOI: 10.1287/mnsc.2018.3079
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    Cited by:

    1. Roman Inderst & Vladimir Vladimirov, 2019. "Growth Firms and Relationship Finance: A Capital Structure Perspective," Management Science, INFORMS, vol. 65(11), pages 5411-5426, November.
    2. Bolton, Patrick & Wang, Neng & Yang, Jinqiang, 2019. "Investment under uncertainty with financial constraints," Journal of Economic Theory, Elsevier, vol. 184(C).

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    More about this item

    Keywords

    cash hoarding; growth firms; public versus private financing; competition; real options;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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