Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235423 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9053
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
Cash holdings at the onset of a financial crisis are a key determinant of investment by SMEs not only during the crisis but also during the recovery period. Cash-rich SMEs could maintain their capital stock during the global financial crisis, while cash-poor rivals reduced theirs. This gave cash-rich SMEs a competitive advantage during the recovery, resulting in a persistent and growing investment gap. The amplification effect was present for SMEs with both volatile and stable cash holdings and was particularly pronounced for younger and smaller firms. Competition dynamics and borrowing constraints seem to drive this amplification effect.
Subjects: 
SMEs
investment
cash holdings
financial crisis
misallocation
JEL: 
D22
E32
E44
G32
Document Type: 
Working Paper
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