Corporate Liquidity Management andFuture Investment Expenditures

This paper empirically examines whether additional future xed capital and R&D investmentexpenditures induce rms to accumulate cash reserves while considering therole of market imperfections. Implementing a dynamic framework on a panel of US, UKand German companies, we nd that rms make larger additions to cash holdings whenthey plan additional future R&D rather than xed capital investment expenditures.This behavior is particularly prevalent among small and non-dividend paying rms thatare heavily involved in R&D activities. We also show that the cash ow sensitivity ofcash is substantially higher for nancially constrained rms than for their unconstrainedcounterparts in the US and the UK, but only marginally higher in Germany...