Cash holding dynamics and competition intensity: Evidence from UK firms

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.

Does environmental management system certification affect green innovation performance?—Based on a moderated mediating effects model

“…To ascertain whether disparities exist in the impact of environmental management system certification, mediated by social responsibility disclosure, on green innovation performance across varying levels of market competition intensity, this study delves into the moderating influence of market competition intensity on this intermediary pathway. The liquidation threat hypothesis posits that intensified competition elevates the risk of bankruptcy and liquidation, exerting substantial pressure on firms to refocus their developmental objectives toward enhancing firm performance (Adamolekun et al, 2022 ). Within markets characterized by heightened competition, the heightened comparability among firms and the concomitant reduction in monitoring costs compel management to prioritize the capture of market share and the fortification of their competitive standing.…”

Cash holdings decision‐making in Spanish family firms: Exploring the impact of heterogeneity

“…Concerning the relevance of cash holding decisions and the range of implications that they have for different aspects of firms, researchers have paid increasing attention to this field of study (Adamolekun et al, 2023;Alghadi et al, 2021;Caprio et al, 2020;Durán et al, 2016;Gul et al, 2020;Houqe et al, 2023;Lei et al, 2022;Q. Liu et al, 2015;Loi et al, 2023;Moolchandani & Kar, 2021;Steijvers & Niskanen, 2013;Yu-Thompson et al, 2016;Yun et al, 2021).…”

“…The level of cash holdings is one of the main corporate decisions with significant consequences for the development and growth of businesses (Adamolekun et al, 2023; Denis, 2011). Specifically, the analysis of corporate cash holdings is essential due to the important role that this element plays in the ability of the company to obtain external resources (Alghadi et al, 2021), its contribution to reducing the risk of suffering financial distress, and the flexibility that it provides to businesses, as well as the increase in maintenance expenses and the opportunity cost that it generates (Caprio et al, 2020).…”

“…Concerning the relevance of cash holding decisions and the range of implications that they have for different aspects of firms, researchers have paid increasing attention to this field of study (Adamolekun et al, 2023; Alghadi et al, 2021; Caprio et al, 2020; Durán et al, 2016; Gul et al, 2020; Houqe et al, 2023; Lei et al, 2022; Q. Liu et al, 2015; Loi et al, 2023; Moolchandani & Kar, 2021; Steijvers & Niskanen, 2013; Yu‐Thompson et al, 2016; Yun et al, 2021). This was especially the case after the financial crisis when all participants in the world economy realized that even the most solid or profitable organizations had problems due to cash restrictions and thus questioned the financial system's capacity to provide effective and opportune financing (Durán et al, 2016).…”