Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings - HEC Paris - École des hautes études commerciales de Paris Access content directly
Journal Articles The Journal of Finance Year : 2010

Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings

Abstract

This paper shows that large cash reserves lead to systematic future market share gains at the expense of industry rivals. Using shifts in import tariffs to identify exogenous intensification of competition, difference-in-difference estimations support the causal impact of cash on product market performance. Moreover, the analysis reveals that the "competitive" effect of cash is markedly distinct from the strategic effect of debt on product market outcomes. This effect is stronger when rivals face tighter financing constraints and when the number of interactions between competitors is large. Overall, the results suggest that cash policy encompasses a substantial strategic dimension.

Domains

Dates and versions

hal-00537081 , version 1 (17-11-2010)

Identifiers

Cite

Laurent Fresard. Financial Strength and Product Market Behavior: The Real Effects of Corporate Cash Holdings. The Journal of Finance, 2010, 65 (3), pp.1097-1122. ⟨10.1111/j.1540-6261.2010.01562.x⟩. ⟨hal-00537081⟩

Collections

HEC CNRS
1899 View
0 Download

Altmetric

Share

Gmail Facebook Twitter LinkedIn More