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Cash Holding Dynamics and Competition Intensity: Evidence from UK firms

Adamolekun, Gbenga; Jones, Edward; Li, Hao

Authors

Edward Jones

Hao Li



Abstract

Using a quasi-natural experiment and various measures of competition intensity, we examine whether an increase in product market competition is a key driver of firm cash holdings. We find that firms increase cash holdings when competition is intense. The results suggest that the degree of increase in cash holdings is magnified among firms exposed to high predatory threat and financing friction. In addition, we examine if increasing cash holdings offers a competitive advantage in the product market. Our results indicate that firms with large cash reserves make gains in market share at the expense of their rivals. Gains in the product market are more pronounced among firms with low exposure to predatory risk and financing frictions.

Journal Article Type Article
Acceptance Date Aug 16, 2022
Online Publication Date Sep 13, 2022
Publication Date 2023-01
Deposit Date Sep 13, 2022
Publicly Available Date Sep 13, 2022
Journal Managerial and Decision Economics
Print ISSN 0143-6570
Electronic ISSN 1099-1468
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 44
Issue 1
Pages 641-662
DOI https://doi.org/10.1002/mde.3705
Public URL http://researchrepository.napier.ac.uk/Output/2897942

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