nr 077 - Financing the New Economy: Are ICT Firms Really That Different?

DNB Working Papers
Date 29 December 2005

Did ICT firms behave very differently from non-ICT firms during the global ICT boom-bust cycle on the stock markets? To answer this question we analyze the financial behavior of a sample of North-American and Western European firms during 1991-2002. We document that ICT firms are indeed what they are always said to be: relatively information intensive and risky firms. We show that they therefore hold more precautionary cash and have lower leverage targets. Though ICT firms issued more equity and debt during the boom, this was broadly unrelated to stock market conditions, in contrast to the prediction of the market timing view. ICT firms did not build up excessive cash reserves that lead to overinvestment. All in all, the financial management of ICT firms has not been all that different from non-ICT firms. JEL codes: C33, C43, E41, G3. Keywords: Cash Management, Market Timing, Capital Structure, ICT