Cash holdings, as a per cent of assets, is rising for the 500 largest non-financial companies in the U.S., according to the Wall Street Journal.Thus it’s not just the banks who are hoarding cash.
Companies such as Alcoa (A), Google (GOOG), Texas Instruments (TXN), and Pepsi (PEP) grew their cash positions in the third quarter.
What’s even more interesting is that this hasn’t been merely a recent trend caused by the economic crisis. U.S. companies have been increasing their cash positions as a per cent of assets since 1991.
WSJ: The cash stockpiling has accelerated a trend that dates back about two decades. In the second quarter of 1991, the 500 largest nonfinancial companies held 3.9% of their assets in cash, according to the Journal’s analysis of data from corporate filings compiled by Capital IQ, a Standard & Poor’s business. That number rose steadily to 9.2% in mid-2004. ]
Rene Stulz, a finance professor at Ohio State University’s business school, says companies increased cash holdings as globalization and technological change exposed them to more risk. “Firms are riskier than they used to be, so they need a bigger security blanket,” he says. They are holding more of their assets in cash than at anytime since the 1960s, when payment automation reduced the need to hold cash for daily operations, he says.