Human Capital and Cash Holdings of Foreign Companies: An Evidence from Developing Economies

Abstract: This study investigates the relationship between human capital investment opportunities in developing economies and cash holdings of foreign firms. Using a sample of 1838 foreign firms operating in Brazil, Russia, India, China and South Africa, I find a positive relationship between cash holdings of foreign firms and human capital investment opportunities, measured by human capital opportunities index (HCIOI). Moreover, foreign firms in China and India face more human capital opportunities and the impact of human capital investment opportunities is stronger for i) foreign firms than domestic firms; ii) labor-intensive industries than capital-intensive industries; iii) non-distressed firms than distressed firms; and iv) financially constrained firms than unconstrained firms.