Costly external finance and corporate investment: The role of marketable securities

Bektemir Ysmailov

doi:10.1016/j.frl.2025.107751

Costly external finance and corporate investment: The role of marketable securities

Bektemir Ysmailov

Graduate School of Business

Research output: Contribution to journal › Article › peer-review

Abstract

This paper demonstrates that the precautionary role of cash depends critically on its composition. We show that, following the onset of the global financial crisis, firms with similar total cash reserves experience significantly different investment declines based on the proportion held in marketable securities. Consistent with theory, these results are driven by firms with a greater reliance on external capital. We conduct several tests to address potential endogeneity concerns. We conclude that firms with seemingly adequate precautionary savings in aggregate may still be highly exposed to shocks if their cash holdings are heavily invested in marketable securities.

Original language	English
Article number	107751
Journal	Finance Research Letters
Volume	83
DOIs	https://doi.org/10.1016/j.frl.2025.107751
Publication status	Published - Oct 2025

Funding

For helpful suggestions, discussions, and comments, I would like to thank Jonathan A. Batten (the editor), two anonymous referees, Alon Brav, Simon Gervais, John Graham, Doron Israeli, Adriano Rampini, David Robinson and seminar participants at Duke University and Nazarbayev University. I would also like to thank Duke University’s Fuqua School of Business, where part of the analysis in this paper was conducted during my stay as a visiting scholar. This work was supported by Nazarbayev University under Social Policy Grant. The funding source had no role in the conduct of the research or preparation of the article. Declarations of interest: none. For helpful suggestions, discussions, and comments, I would like to thank Jonathan A. Batten (the editor), two anonymous referees, Alon Brav, Simon Gervais, John Graham, Doron Israeli, Adriano Rampini, David Robinson and seminar participants at Duke University and Nazarbayev University. I would also like to thank Duke University's Fuqua School of Business, where part of the analysis in this paper was conducted during my stay as a visiting scholar. This work was supported by Nazarbayev University under Social Policy Grant. The funding source had no role in the conduct of the research or preparation of the article. Declarations of interest: none.

Funders
Nazarbayev University
Duke University

Keywords

Cash
Crisis
Financial constraints
Precautionary savings
Short-term investments

ASJC Scopus subject areas

Finance

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10.1016/j.frl.2025.107751

https://www.sciencedirect.com/science/article/abs/pii/S1544612325010098

Cite this

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Costly external finance and corporate investment: The role of marketable securities

Abstract

Funding

Keywords

ASJC Scopus subject areas

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