The Empirical Research About The Impact Of Cash Holdings On Periodical R&D Investment

In current, economic growth has caught into the bottleneck period in China, firms face some problems, such as serious overcapacity, inefficiency etc., and lacking self-innovation ability is the fundamental reason. Cash holdings is related to firm's self-innovation activities closely. In the recession, whether corporate cash holdings is led by the effect of opportunity cost or liquidity risk determines the structure of R&D investment to some extent, which influences radical innovation.Based on data of Chinese listed companies in the manufacturing industry from 2010 to 2013, this paper divides R&D investment into research stage and development stage from the perspective of financial statement. By setting up mathematical model and using propensity score matching method, this paper analyzes the effect difference of corporate cash holdings between two stages of R&D investment under the circumstance of current economic slowdown and concludes as follows:First, listed firms of Chinese manufacturing industry which hold adequate cash do not increase input into fundamental research, for which firms can not strengthen opportunity cost effect, and corporate R&D decision mainly depends on liquidity risk effect. Second, firms have motivation to hoard cash for experimental development, which can strengthen opportunity cost effect for this stage of R&D investment. Third, state-owned firms suffering weak financial constraint can strengthen opportunity cost effect for fundamental research partially, and non-state-owned firms suffering strong financial constraint have stronger motivation to hoard cash for experimental development. Fourth, when holding adequate cash, less competitive firms do not invest more fundamental research than competitive firms, but competitive firms reserve cash for experimental development expenditures actively, strengthening the opportunity cost in the recession.Conclusions manifest that in both the fundamental research and experimental development stage, the R&D activities are limited by imperfect financial market. R&D activities should be of anti-cycle characteristic led by opportunity cost effect in the recession. However, corporate fundamental research does not manifest this characteristic due to financial constraint, which is the vital reason of lacking revolutionary innovation in China. In addition, enterprises engaging in experimental development can improve their short-run profitability in the recession. However, imperfect financial market also compels enterprises to hoard cash beforehand, only by this way can opportunity cost effect be reinforced during this period. In short, fundamental research faces more serious financial constraints than experimental development research in China, and state-owned industries occupy more R&D resources. To further enhance corporate capacities of independent innovation needs to promote engagement of non-state-owned in the fundamental research activity. At the same time, it is necessary to encourage firms to establish their own R&D reserve system so as to increase the back-end experimental development. However, the ultimate measure is to speed up the construction of the financial market and to create good financing environment for corporate R&D activities.