Inventor-base concentration and corporate cash holdings

Using a unique dataset tracking the career paths of inventors in U.S. public firms, we investigate how inventor-base concentration impacts corporate cash holdings. A concentrated inventor base enhances the efficiency of utilizing inventors' human capital, reducing the transaction motive to hold cash. Conversely, the potential loss due to key inventors' departure may increase the precautionary motive to hold cash. We find a negative impact of inventor-base concentration on cash holdings, supporting the notion of reducing the transaction motive. Firms with a more concentrated inventor base have lower demand for spending cash on labor costs and R&D. Additionally, the negative impact on cash holdings is more pronounced for firms facing financial constraints. Finally, the value of cash holdings is negatively related to the degree of inventor-base concentration. These results highlight the importance of understanding a firm's human capital strategies when evaluating its financing policy.