Why Are Companies Sitting on Cash Right Now?
Firms hold large cash reserves as insurance against premature failure, especially small or vulnerable firms, not only for flexibility or tax reasons.
Summary
Govindarajan, Srivastava and Chatterjee report that non-bank U.S. firms hold $6.9 trillion in cash, about one dollar in five of total assets, despite returns below borrowing costs. They review established explanations, including investment and operational flexibility in a knowledge economy and tax considerations. Their research adds precautionary cash holdings: companies hold cash to avoid premature failures that destroy shareholder value, a
Editor's opinion
Firms hold large cash reserves as insurance against premature failure, especially small or vulnerable firms, not only for flexibility or tax reasons.
Key concepts
Precautionary cash holdings · Corporate liquidity · Avoiding premature failure