Increase in Cash Holdings: Pervasive or Sector-Specific?

Abstract

This paper examines the difference in cash holdings between high-tech and non-high-tech firms over the period from 1974 to 2007. In contrast to the average cash-to-assets ratio of non-hightech firms, which remained stable at a level close to that of the 1970s, the average cash ratio of high-tech firms more than tripled from 1980 to 2007. By expanding the regression model of cash holdings developed by Opler et al. (1999), and estimating it for the high-tech and non-high-tech sectors separately, I find that this difference can be explained by changing firm characteristics across these two sectors. This is a consequence of high-tech new listings, whose changing nature and increasing proportion in the sector over the past three decades are responsible for causing population characteristics in the high-tech sector to tilt toward those typical of firms that hold more cash.

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