Why Are Companies Sitting on So Much Cash?
The surge in US corporate cash, from $1.6 trillion in 2000 to over $4 trillion, is only partly precautionary, which suggests many firms hold cash for reasons their capital-allocation logic cannot justify.
Summary
Hankins and Petersen use non-public Bureau of Economic Analysis data to test how much of the rise in corporate cash reflects precautionary motives. They find uncertainty explains only part of the increase, with shifts in business mix and the nature of investment also important. The research gives CFOs a benchmark for judging whether their own cash levels reflect genuine risk buffers or inertia. It reframes cash holdings as an active
Editor's opinion
Uses non-public BEA data to correct the assumption that rising corporate cash is mostly precautionary -- a genuinely useful capital-allocation benchmark for CFOs.
Key concepts
Corporate cash holdings · Precautionary savings · Liquidity management