Cash Holding Dynamics and Competition Intensity: Evidence from UK firms

Adamolekun, Gbenga; Jones, Edward; Li, Hao

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.

Citation

Adamolekun, G., Jones, E., & Li, H. (2023). Cash Holding Dynamics and Competition Intensity: Evidence from UK firms. Managerial and Decision Economics, 44(1), 641-662. https://doi.org/10.1002/mde.3705

• 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