Issue

Vol 38 No 1 (2023): January

Date Log

Submitted
Feb 10, 2022
Accepted
Dec 12, 2022
Published
Jan 24, 2023
Creative Commons License

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

https://doi.org/10.22146/jieb.v38i1.3981
Rayenda Khresna Brahmana
School of Economics, Finance, and Accounting, Coventry University, Coventry, CV1 5DL, United Kingdom
Doddy Setiawan
doddy.setiawan@staff.uns.ac.id
Faculty of Economics and Business, Universitas Sebelas Maret, Surakarta, 57126, Indonesia
Maria Kontesa
Faculty of Economics and Business, Universitas Widya Dharma Pontianak Indonesia
Lee-Ung Soo
Faculty of Economics and Business, Universiti Malaysia Sarawak, Malaysia

Corresponding Author(s) : Doddy Setiawan

doddy.setiawan@staff.uns.ac.id

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

cash holding controlling shareholders innovation R&D intensity
Brahmana, R. K., Setiawan, D., Kontesa, M., & Soo, L.-U. (2023). Cash Holdings and R&D Intensity with Different Controlling Shareholders. Journal of Indonesian Economy and Business, 38(1), 43-61. https://doi.org/10.22146/jieb.v38i1.3981
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX
References
  1. Amin, Q. A., & Liu, J. (2020). Shareholders' control rights, family ownership and the firm's leverage decisions. International Review of Financial Analysis, 72, 101591.
  2. 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
  3. 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.
  4. 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
  5. 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.
  6. 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
  7. 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
  8. 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
  9. 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
  10. 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.
  11. 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
  12. 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
  13. 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
  14. 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
  15. Chen, L. (2017). Managerial incentives, R&D investments and cash flows. Managerial Finance, 43(8), 898-913. doi:10.1108/MF-01-2017-0010
  16. 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
  17. 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
  18. Claessens, S., Djankov, S., Fan, J., Lang, L. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance 57, 2741–2771.
  19. 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.
  20. 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
  21. 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
  22. 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.
  23. 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
  24. 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
  25. 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.
  26. 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.
  27. 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
  28. 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
  29. 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
  30. 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
  31. 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.
  32. Ladime, J., & Brahmana, R. K. (2021). Role of controlling shareholders on the performance of efficient African banks. African Development Review, 33(2), 316-328.
  33. 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.
  34. Lee, K., & Roh, T. (2020). Proactive divestiture and business innovation: R&D input and output performance. Sustainability, 12(9), 3874.
  35. 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
  36. 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
  37. Lyandres, E., & Palazzo, B. (2016). Cash Holdings, Competition, and Innovation. Journal of Financial and Quantitative Analysis, 51(6), 1823-1861. doi:10.1017/S0022109016000697
  38. 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.
  39. 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
  40. 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
  41. 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.
  42. 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.
  43. 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.
  44. 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).
  45. 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.
  46. 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.
  47. 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
  48. 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
  49. Yin, X., Hai, B.-l., & Chen, J. (2019). Financial Constraints and R&D Investment: The Moderating Role of CEO Characteristics. Sustainability, 11(15), 4153.
  50. Zemplinerová, A., & Hromádková, E. J. P. E. P. (2012). Determinants of Firm's Innovation. Prague Economic Papers, 21(4), 487-503.
Read More
Author biographies is not available.
Download this PDF file
PDF
Statistic
Read Counter : 704 Download : 1823