We examine the strategic role of cash in a two-stage competition model featuring a first-mover advantage in product markets and time delays in outside financing. Due to the joint effect of the first-mover advantage, time to finance, market profitability, participation cost, and the arrival rate of investment opportunities, large cash holdings can arise in equilibrium in both concentrated and diffuse industries, leading to a rich relation between industry concentration and cash holdings. The model also reveals novel interactions of these drivers of cash holdings that are consistent with empirical evidence. Furthermore, despite that cash is held to enable fast responses to investment opportunities, the correlation between cash holdings and realized investment is low. Our model provides an explanation for the large variation in cash holdings across industries and over time, and the strong correlation between cash holdings and R&D.

We examine empirically and theoretically the relation between firms’ risk and distance to consumers in a production network. We document two novel facts: firms farther away from consumers have higher risk premiums and higher exposure to aggregate productivity. We quantitatively explain these findings using a general equilibrium model featuring a multilayer production process. The economic force is “vertical creative destruction,” that is, positive productivity shocks to suppliers devalue customers’ assets-in-place, thereby lowering the cyclicality of downstream firms’ values. We show that vertical creative destruction varies with competition and firm characteristics and generates sizable cross-sectional differences in risk premiums.