Beyond survival: why entrepreneurial ventures hold excess cash

Purpose Cash holdings are essential for innovative, high-growth entrepreneurial ventures that access capital markets. However, these ventures frequently experience excess liquidity. This phenomenon raises the question of what determines liquidity. The main reasons why entrepreneurial ventures hold cash remain poorly understood to date. Drawing on the finance, governance, and innovation literature, we argue that six main factors explain why entrepreneurial ventures hold cash: firm size, leverage, cash flow volatility, dividend payouts, research and development (R&D), and corporate governance. Design/methodology/approach We investigate which factors are most influential in explaining why these firms hold cash based on a dynamic panel of 258 French entrepreneurial ventures listed on the Euronext Paris stock market over the period 2010–2020. Findings We find that entrepreneurial ventures hold more cash when they are smaller, have more volatile cash flows, and do not pay dividends. Conversely, higher leverage and stronger governance mechanisms (executive ownership and CEO duality) reduce cash reserves. Surprisingly, R&D intensity does not significantly affect cash holdings in the French context, suggesting that alternative innovation financing channels exist. Originality/value This study provides novel evidence on cash determinants for a unique segment of innovative, listed small and medium-sized enterprises (SMEs). We highlight the primacy of the precautionary motive in entrepreneurial ventures and show how the institutional context shapes the relevance of governance mechanisms. Our findings demonstrate a relationship between entrepreneurial ventures’ cash holdings, the effectiveness of their internal governance mechanisms, and growth investment opportunities. Entrepreneurial ventures increase their cash holdings when they have important growth opportunities.