Non-Precautionary Cash Hoarding and the Evolution of Growth Firms
نویسندگان
چکیده
We analyze the trade-off faced by growth firms between hoarding cash (and delaying investment) and incurring dilution from external financing. Such nonprecautionary hoarding features a self-reinforcing effect: firms with better investment opportunities hoard less, yet grow successful and cash-rich more quickly. We show that non-precautionary hoarding affects the choice between public and private financing, and analyze how both respond to product market competition. Our insights help explain puzzling empirical evidence, such as why private firms hoard less than public firms, and why competition drives some firms to prefer cash hoarding and public financing, while having the opposite effect on others.
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