Cash holding dynamics and competition intensity: Evidence from UK firms

Gbenga Adamolekun*, Edward Jones, Hao Li

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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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.
Original languageEnglish
JournalManagerial and Decision Economics
Early online date13 Sep 2022
DOIs
Publication statusE-pub ahead of print - 13 Sep 2022

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