Jove
Visualize
Contact Us
JoVE
x logofacebook logolinkedin logoyoutube logo
ABOUT JoVE
OverviewLeadershipBlogJoVE Help Center
AUTHORS
Publishing ProcessEditorial BoardScope & PoliciesPeer ReviewFAQSubmit
LIBRARIANS
TestimonialsSubscriptionsAccessResourcesLibrary Advisory BoardFAQ
RESEARCH
JoVE JournalMethods CollectionsJoVE Encyclopedia of ExperimentsArchive
EDUCATION
JoVE CoreJoVE BusinessJoVE Science EducationJoVE Lab ManualFaculty Resource CenterFaculty Site
Terms & Conditions of Use
Privacy Policy
Policies

Related Experiment Videos

How much cash does your company need?

Richard Passov1

  • 1Pfizer, New York, USA.

Harvard Business Review
|November 19, 2003
PubMed
Summary

Knowledge-intensive companies, like Pfizer, need large cash reserves to protect volatile intangible assets and maintain shareholder value. This strategy, though unconventional, is key to their financial stability and premium share prices.

Related Concept Videos

You might also read

Related Articles

Articles linked to this work by shared authors, journal, and citation graph.

Sort by
Same journal

The Case for Capitation.

Harvard business review·2016
Same journal

How to Pay for Health Care.

Harvard business review·2016
Same journal

How to Preempt Team Conflict.

Harvard business review·2016
Same journal

The Secrets of Great Teamwork.

Harvard business review·2016
Same journal

Leading the Team You Inherit.

Harvard business review·2016
Same journal

Wicked Problem Solvers.

Harvard business review·2016

Area of Science:

  • Corporate Finance
  • Knowledge Management
  • Financial Economics

Background:

  • Knowledge-intensive companies possess significant intangible assets (e.g., R&D) that are volatile and difficult to value.
  • These assets make such firms more susceptible to financial distress compared to those with tangible assets.

Purpose of the Study:

  • To examine the financial policies of knowledge-intensive companies, specifically their rationale for maintaining large cash balances.
  • To argue that substantial cash reserves are crucial for insuring against risks associated with intangible asset volatility and investment continuity.

Main Methods:

  • Analysis of financial policies and capital structures of knowledge-intensive firms.
  • Comparison of traditional capital structure theory with observed practices in companies like Pfizer, Intel, and ChevronTexaco.

Main Results:

  • Knowledge-intensive companies maintain large cash balances as a strategic measure against financial distress due to intangible asset volatility.
  • This practice contributes to sustained share price premiums and enables continued investment in value-adding assets.
  • Optimal capital structure for these firms deviates from traditional models, emphasizing significant cash reserves.

Conclusions:

  • Maintaining substantial cash reserves is a vital strategy for knowledge-intensive companies to safeguard their intangible assets and ensure long-term value.
  • Financial policies prioritizing cash accumulation allow these firms to mitigate risks and invest effectively, even in challenging market conditions.

Related Experiment Videos