01983cas a2200265 a 4500 AALejournalIMF018982 230101c9999 xx r poo 0 0eng d 5.00 USD 9781484392164 1018-5941 BD-DhAAL BD-DhAAL Adler, Konrad. Innovation and Corporate Cash Holdings in the Era of Globalization / Konrad Adler, JaeBin Ahn, Mai Chi Dao. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (62 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We document a broad-based trend in rising cash holdings of firms across major industrialized countries over the last two decades, a trend that is most pronounced for firms engaged strongly in R and D activities. Our contributions to the literature are twofold. First, we develop a simple model that brings together the insights from modern trade theory (Melitz, 2003) with those of contract theory in corporate finance (Holmstrom and Tirole, 1998) to show that increased openness to trade can result in rising returns to innovation and in turn greater demand for cash as firms insure against innovation-induced liquidity risk. Second, we derive sharp empirical predictions and find supporting evidence for them using firm-level data across major G7 countries during 1995-2014, a period that saw an unprecedented rise in globalization and business innovation. Mode of access: Internet Ahn, JaeBin. Dao, Mai Chi. IMF Working Papers; Working Paper ; No. 2019/017 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/017/001.2019.issue-017-en.xml IMF e-Library