Date Log
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Copyright
Upon acceptance of an article, authors transfer copyright to the JIEB as part of a journal publishing agreement, but authors still have the right to share their article for personal use, internal institutional use, and for any use permitted under the CC BY-SA license
Open Access
Articles are freely available to the public without any subscription with permitted reuse. For open access articles, permitted third party (re)use is defined by the following Creative Commons user licenses: Creative Commons Attribution (CC BY-SA).
Cash Holdings and R&D Intensity with Different Controlling Shareholders
Corresponding Author(s) : Doddy Setiawan
Journal of Indonesian Economy and Business,
Vol 38 No 1 (2023): January
Abstract
Introduction/Main Objectives: This research aims to examine the effects of cash holdings on a firm’s R&D intensity. We further examine how that relationship may be varied across different controlling shareholders. For robustness reasons, we test it in a developing market and a developed market. Background Problems: Economics and business theories state that research and development (R&D) is susceptible to financing constraints due to the lack of collateral value and asymmetric information issues. This argument has been extensively debated with no consensus being reached. Therefore current study focuses on the examination of R&D and cash holding and the role of controlling shareholders. Novelty: The current study considers the importance of controlling shareholders on the relationship between cash holding and R&D intensity. We expect that different controlling shareholders will have different constraints on R&D financing. Research Methods: This study focuses on a sample of public listed companies in Malaysia and Singapore from the year 2012 to 2018, and estimates the model under a two-step GMM panel regression to eliminate the endogeneity issue. Finding/Results: The results show that cash holdings have significant effects on the intensity of R&D. However, that relationship is different across countries and across controlling shareholders. Malaysia’s foreign firms will increase their R&D’s intensity when their cash holdings are high. Meanwhile, Singaporean family firms will reduce the intensity of their R&D when their cash holdings are high. Overall the findings confirm the hypothetical alignment of the agency theory and also the resource-based view theory. Conclusion: Our findings surmise that higher cash holdings cause a lower R&D intensity due to the cash management decisions by managers. A firm with high leverage tends to reduce its R&D intensity when cash holdings are high, and vice versa. This behavior can be found in all the controlling shareholders.
Keywords
Download Citation
Endnote/Zotero/Mendeley (RIS)BibTeX
- Amin, Q. A., & Liu, J. (2020). Shareholders' control rights, family ownership and the firm's leverage decisions. International Review of Financial Analysis, 72, 101591.
- Anderson, R. C., Duru, A., & Reeb, D. M. (2012). Investment policy in family controlled firms. Journal of Banking & Finance, 36(6), 1744-1758. doi:https://doi.org/10.1016/j.jbankfin.2012.01.018
- Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: evidence from the S&P 500. The Journal Of Finance, 58(3), 1301-1328.
- Anwar, S., & Sun, S. (2013). Foreign entry and firm R&D: evidence from Chinese manu¬facturing industries. R&D Management, 43(4), 303-317. doi:https://doi.org/10.1111/radm.12009
- Ariyono, B. D., & Setiyono, B. (2020). Does institutional ownership and bank monitoring affect agency conflicts? evidence from an emerging market. Journal of Indonesian Economy and Business, 35(3), 171-187.
- Baldi, G., & Bodmer, A. (2018). R&D investments and corporate cash holdings. Economics of Innovation and New Tech-nology, 27(7), 594-610. doi:10.1080/10438599.2017.1378191
- Beladi, H., Deng, J., & Hu, M. (2021). Cash flow uncertainty, financial constraints and R&D investment. International Review of Financial Analysis, 76, 101785. doi:https://doi.org/10.1016/j.irfa.2021.101785
- Bhagat, S., & Welch, I. (1995). Corporate research & development investments international comparisons. Journal of Accounting and Economics, 19(2), 443-470. doi:https://doi.org/10.1016/0165-4101(94)00391-H
- Blundell, R., & Bond, S. (1998). Initial condi-tions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. doi:https://doi.org/10.1016/S0304-4076(98)00009-8
- Boeing, P., Eberle, J., & Howell, A. (2022). The impact of China's R&D subsidies on R&D investment, technological upgrading and economic growth. Technological Fore¬casting and Social Change, 174, 121212.
- Bond, P., Edmans, A., & Goldstein, I. (2012). The Real Effects of Financial Markets. Annual Review of Financial Economics, 4(1), 339-360. doi:10.1146/annurev-financial-110311-101826
- Bond, S., & Meghir, C. (1994). Dynamic investment models and the firm's financial policy. The Review of Economic Studies, 61(2), 197-222. doi:10.2307/2297978 %J The Review of Economic Studies
- Brahmana, R. K., Setiawan, D., & Hooy, C. W. (2019). Controlling shareholders and the effect of diversification on firm value: evidence from Indonesian listed firms. Journal of Asia Business Studies, 13(3), 362-383. doi:10.1108/JABS-12-2016-0165
- Brown, J. R., Martinsson, G., & Petersen, B. C. (2012). Do financing constraints matter for R&D? European Economic Review, 56(8), 1512-1529. doi:https://doi.org/10.1016/j.euroecorev.2012.07.007
- Chen, L. (2017). Managerial incentives, R&D investments and cash flows. Managerial Finance, 43(8), 898-913. doi:10.1108/MF-01-2017-0010
- Cherkasova, V., & Kurlyanova, A. (2019). Does corporate R&D investment support to decrease of default probability of Asian firms? Borsa Istanbul Review, 19(4), 344-356. doi:https://doi.org/10.1016/j.bir.2019.07.009
- Choi, Y. R., Zahra, S. A., Yoshikawa, T., & Han, B. H. (2015). Family ownership and R&D investment: The role of growth opportunities and business group member¬ship. Journal of Business Research, 68(5), 1053-1061. doi:https://doi.org/10.1016/j.jbusres.2014.10.007
- Claessens, S., Djankov, S., Fan, J., Lang, L. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance 57, 2741–2771.
- Claessens, S., Fan, J.P.H., Lang, L.H.P. (2006). The benefits and costs of group affiliation: evidence from East Asia. Emerging Markets Review 7 (1), 1–26.
- Cull, R., Li, W., Sun, B., & Xu, L. C. (2015). Government connections and financial constraints: Evidence from a large repre-sentative sample of Chinese firms. Journal of Corporate Finance, 32, 271-294. doi:https://doi.org/10.1016/j.jcorpfin.2014.10.012
- Dawson, J. F. (2014). Moderation in Manage-ment Research: What, Why, When, and How. Journal of Business and Psychology, 29(1), 1-19. doi:10.1007/s10869-013-9308-7
- Fang, H., Singh, K., Kim, T., Marler, L., & Chrisman, J. J. (2022). Family business research in Asia: review and future direc-tions. Asia Pacific Journal of Management, 39(4), 1215-1256.
- Foo, C.-T., & Foo, C.-T. (2000). Socialization of technopreneurism: towards symbiosis in corporate innovation and technology strategy. Technovation, 20(10), 551-562. doi:https://doi.org/10.1016/S0166-4972(99)00171-6
- Fuller, A. W. (2018). Toward a Perspective on R&D Outsourcing: RBV and Firm Performance. International Journal of Innovation and Technology Management, 15(05), 1850040. doi:10.1142/s0219877018500402
- Hall, B. H., Moncada-Paternò-Castello, P., Montresor, S., & Vezzani, A. (2016). Financing constraints, R&D investments and innovative performances: new empirical evidence at the firm level for Europe. Economics of Innovation and New Technology, 25(3), 183-196.
- Hartono, A., & Kusumawardhani, R. (2018). Searching widely or deeply? The impact of open innovation on innovation performance among Indonesian manufacturing firms. Journal of Indonesian Economy and Business: JIEB., 33(2), 123-142.
- He, Z., & Wintoki, M. B. (2016). The cost of innovation: R&D and high cash holdings in U.S. firms. Journal of Corporate Finance, 41, 280-303. doi:https://doi.org/10.1016/j.jcorpfin.2016.10.006
- Himmelberg, C. P., & Petersen, B. C. (1994). R & D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries. The Review of Economics and Statistics, 76(1), 38-51. doi:10.2307/2109824
- Hoskisson, R. E., Hitt, M. A., Johnson, R. A., & Grossman, W. (2002). Conflicting Voices: The Effects of Institutional Ownership Heterogeneity and Internal Governance on Corporate Innovation Strategies. Academy of Management Journal, 45(4), 697-716. doi:10.5465/3069305
- Huang-Meier, W., Lambertides, N., & Steeley, J. M. (2016). Motives for corporate cash holdings: the CEO optimism effect. Review of Quantitative Finance and Accounting, 47(3), 699-732. doi:10.1007/s11156-015-0517-1
- Ismail, M. A., Ibrahim, M. H., Yusoff, M., & Zainal, M.-P. (2010). Financial constraints and firm investment in Malaysia: An investigation of investment-cash flow relationship. International Journal of Economics and Management, 4(1), 29-44.
- Ladime, J., & Brahmana, R. K. (2021). Role of controlling shareholders on the performance of efficient African banks. African Development Review, 33(2), 316-328.
- La Rocca, M., & Cambrea, D. R. (2019). The effect of cash holdings on firm performance in large Italian companies. Journal of International Financial Management & Accounting, 30(1), 30-59.
- Lee, K., & Roh, T. (2020). Proactive divestiture and business innovation: R&D input and output performance. Sustainability, 12(9), 3874.
- Lewellyn, K. B., & Bao, R. S. (2021). R&D investment around the world: Effects of ownership and performance-based cultural contexts. Thunderbird International Business Review, 63(2), 217-233. doi:https://doi.org/10.1002/tie.22187
- Liu, Q., & Tian, G. (2012). Controlling shareholder, expropriations and firm's leverage decision: Evidence from Chinese Non-tradable share reform. Journal of Corporate Finance, 18(4), 782-803. doi:https://doi.org/10.1016/j.jcorpfin.2012.06.002
- Lyandres, E., & Palazzo, B. (2016). Cash Holdings, Competition, and Innovation. Journal of Financial and Quantitative Analysis, 51(6), 1823-1861. doi:10.1017/S0022109016000697
- Peia, O., & Romelli, D. (2022). Did financial frictions stifle R&D investment in Europe during the great recession?. Journal of International Money and Finance, 120, 102263.
- Petersen, M. A. (2008). Estimating standard errors in finance panel data sets: comparing approaches. The Review of Financial Studies, 22(1), 435-480. doi:10.1093/rfs/hhn053 %J The Review of Financial Studies
- Rocco, D. C., Ponomareva, Y., & Pittino, D. (2018). Cash holdings and firm value: The moderating roles of family involvement and board structure. Academy of Management Journal, 2018(1), 14684. doi:10.5465/AMBPP.2018.14684abstract
- Setiawan, D., Aryani, Y. A., Yuniarti, S., & Brahmana, R. K. (2019). Does Ownership Structure Affect Dividend Decisions? Evidence from Indonesia's Banking Industry. International Journal of Business, 24(3), 329-343.
- Soejono, F. (2010). Ownership type and company performance: Empirical studies in the Indonesian stock exchange. Journal of Indonesian Economy and Business, 25(3), 338-352.
- Suprianto, E., Rahmawati, R., Setiawan, D., & Aryani, Y. A. (2019). Controlling gene-ration of family firms and earnings management in Indonesia: The role of accounting experts of audit committees. Journal of International Studies, 12(3):265-276.
- Utami, T. L. W., Indarti, N., Sitalaksmi, S., & Makodian, N. (2017). The effect of know¬ledge sources on innovation capabilities among restaurants and café business in Indonesia. Journal of Indonesian Economy & Business, 32(1).
- Wang, Z., Wei, K., & Zhang, W. (2014). The bright side of cash holdings: innovation efficiency. Paper presented at the 27th Australasian Finance and Banking Confe-rence.
- Wardhana, L. I., & Tandelilin, E. (2011). Insti¬tutional ownership and agency conflict controlling mechanism. Journal of Indone¬sian Economy and Business, 26(3), 389-406.
- Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581-606. doi:https://doi.org/10.1016/j.jfineco.2012.03.005
- Yıldız, E. B., Dabić, M., Stojčić, N., Dindaroğlu, Y., & Temel, S. (2021). Scrutinizing innovation performance of family firms in efficiency-driven environment. Journal of Business Research, 129, 260-270. doi:https://doi.org/10.1016/j.jbusres.2021.02.022
- Yin, X., Hai, B.-l., & Chen, J. (2019). Financial Constraints and R&D Investment: The Moderating Role of CEO Characteristics. Sustainability, 11(15), 4153.
- Zemplinerová, A., & Hromádková, E. J. P. E. P. (2012). Determinants of Firm's Innovation. Prague Economic Papers, 21(4), 487-503.