While most Americans have spent down their pandemic savings, non-banking U.S. firms have increased their hoards of cash, reaching $6.9 trillion, an amount larger than the GDP of all but two countries. Even as interest rates have risen, cash now represents $1 out of every $5 of total assets held by non-banking U.S. firms, according to our research.
Why Are Companies Sitting on Cash Right Now?
Research shows it’s an increasingly important form of insurance, particularly for small or vulnerable firms.
February 05, 2024
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Summary.
Many companies sit on piles of cash, even when rates of return suggest they shouldn’t. Why? Researchers have pointed to multiple reasons, including flexibility for M&A and tax advantages. But new research suggests it’s also a form of insurance, especially for smaller firms. Their likelihood of experiencing an adverse event (measured by the chance of being delisted) is significantly higher when they hold less cash.
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Sharpening Your Business Acumen Course
Accelerate your career with Harvard ManageMentor®. HBR Learning’s online leadership training helps you hone your skills with courses like Sharpening Your Business Acumen. Earn badges to share on LinkedIn and your resume. Access more than 40 courses trusted by Fortune 500 companies.
Take your career to the next level by learning business and finance basics, and developing an enterprise mindset.