(Non-)Precautionary Cash Hoarding and the Evolution of Growth Firms

Arnoud W. A. Boot · Vladimir N. Vladimirov

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Corporate Finance and Governance Private Equity and Venture Capital Working Capital and Financial Performance

Abstract

We analyze whether growth firms should delay current investment to hoard cash in order to reduce dilution from external financing. This hoarding motive is the natural counterpart to saving cash as a precaution to help secure funding for future investment opportunities. However, the two motives lead to fundamentally different implications for hoarding and for how cash interacts with key financial and investment decisions. In particular, our paper contributes to understanding why firms choosing private over public financing hoard less, and why product market competition has an ambivalent impact on the public–private choice. This paper was accepted by Gustavo Manso, finance.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1994Investment Under Uncertainty.1994Investment under Uncertainty 1998Investor Psychology and Security Market Under‐ and Overreactions 1997Financial Intermediation, Loanable Funds, and The Real Sector 1982The Value of Waiting to Invest 2004The Cash Flow Sensitivity of Cash 1980Takeover Bids, The Free-Rider Problem, and the Theory of the Corporation

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