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Increase in cash holdings of U.S. firms: the role of healthcare and technology industries

Increase in cash holdings of U.S. firms: the role of healthcare and technology industries
Increase in cash holdings of U.S. firms: the role of healthcare and technology industries

We examine whether the high cash ratio and the secular increase in cash holdings of U.S. firms are driven by healthcare and technology industries. We find that these two industries have significantly increased their cash holdings from 1980 to 2015. It is only in these two industries that firms with riskier cash flow, financially constrained firms, R&D firms, low-efficiency firms, and firms with low institutional ownership and high board size dramatically increase their cash holdings. Similar firms in other industries do not substantially accumulate cash reserves. The explanatory powers of firm characteristics, industry characteristics, and industry competition on cash holdings in healthcare and technology industries are stronger than in other industries. Moreover, we find a causal effect of the 2008 financial crisis on the difference in cash holdings between healthcare and technology industries, and other industries.

Agency costs, Cash holdings, Industry competition, Industry effect, Precautionary motive, R&D investment
0148-2963
286-298
Li, Xiafei
f3c3775c-bf95-40a8-b611-29b58eaabcbb
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f
Li, Xiafei
f3c3775c-bf95-40a8-b611-29b58eaabcbb
Luo, Di
cc1b0fa7-f630-45dc-ab05-495f9023148f

Li, Xiafei and Luo, Di (2020) Increase in cash holdings of U.S. firms: the role of healthcare and technology industries. Journal of Business Research, 118, 286-298. (doi:10.1016/j.jbusres.2020.06.034).

Record type: Article

Abstract

We examine whether the high cash ratio and the secular increase in cash holdings of U.S. firms are driven by healthcare and technology industries. We find that these two industries have significantly increased their cash holdings from 1980 to 2015. It is only in these two industries that firms with riskier cash flow, financially constrained firms, R&D firms, low-efficiency firms, and firms with low institutional ownership and high board size dramatically increase their cash holdings. Similar firms in other industries do not substantially accumulate cash reserves. The explanatory powers of firm characteristics, industry characteristics, and industry competition on cash holdings in healthcare and technology industries are stronger than in other industries. Moreover, we find a causal effect of the 2008 financial crisis on the difference in cash holdings between healthcare and technology industries, and other industries.

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Accepted/In Press date: 17 June 2020
Published date: September 2020
Additional Information: Funding Information: This research was supported by Southampton Business School Small Research Fund, University of Southampton. Publisher Copyright: © 2020 Elsevier Inc.
Keywords: Agency costs, Cash holdings, Industry competition, Industry effect, Precautionary motive, R&D investment

Identifiers

Local EPrints ID: 442843
URI: http://eprints.soton.ac.uk/id/eprint/442843
ISSN: 0148-2963
PURE UUID: ebd5f6f1-90f5-4302-bb08-101fb4f731e6
ORCID for Di Luo: ORCID iD orcid.org/0000-0001-7405-6347

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Date deposited: 29 Jul 2020 16:30
Last modified: 17 Mar 2024 05:47

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Contributors

Author: Xiafei Li
Author: Di Luo ORCID iD

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