Research and development investment and cash holdings of Asian start-up firms: Evidence from economic policy uncertainty : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

Economic policy uncertainty (EPU) affects firms’ financial decisions (Gulen & Ion, 2016). Scholars argue that firms might confront severe cash shortages and difficulties obtaining external funds during high EPU periods. Therefore, firms are more likely to defer their R&D investment projects and hold more cash when EPU increases. However, given the important contribution of start-up firms to economic growth and job creation, most studies focus on the effect of EPU on R&D investment and cash holdings of mature firms. Several studies have recently investigated if ownership intervenes in the EPU – firms’ R&D investment relationship. However, scholars have paid limited attention to such ownership intervention in start-up firms’ R&D investment. Interestingly, the intervention of ownership in the EPU – firms’ cash holdings nexus has not been addressed. Therefore, further investigation is needed to address if ownership influences start-up firms’ cash holdings decisions in the presence of EPU. The study is the first to investigate the effect of EPU on start-up firms’ R&D investment and cash holdings using a panel dataset of 3,536 start-up firms listed on the Asian start-up markets for the period 2010-2019. In addition, this study examines if institutional and insider ownership intervene in the EPU - start-up firms’ R&D investment and the EPU - start-up firms’ cash holdings relationships using the selected dataset. The study employs the instrumental variable (IV) estimator to control for potential endogeneity problems. The empirical results indicate that EPU positively affects R&D investment of start-up firms in the dataset. Meanwhile, a negative relationship exists between EPU and start-up firms’ cash holdings. The results show that institutional ownership has no effect on the EPU - start-up firms’ R&D investment. However, insider ownership encourages start-up firms to increase R&D investment when EPU is higher. Further, the empirical results reveal a positive effect of institutional ownership on the relationship between EPU and start-up firms’ cash holdings. This means institutional shareholders encourage start-up firms to spend their cash holdings in the presence of EPU. However, insider ownership discourages start-up firms from using their cash holdings when EPU increases.