Monday, August 02, 2010

Corporate Cash Hoarding

Fortune has a good article on the issue of whether 'corporate cash hoarding' is sustainable. The article refers to the fact that many companies have chosen to build up large piles of cash on their balance sheet. President Obama and many others have been arguing that these firms should be investing this capital instead of "hoarding" the cash. This Fortune article suggests that firms may be sitting on the cash for now due to the uncertainty surrounding the economy and government policy, but that this situation cannot last forever. Eventually, firms will be forced by their shareholders to either issue large dividends, or invest the cash in new equipment, employees, and the like. I think that's generally right, though I would offer one very important caveat. Many firms may be revisiting their views regarding their optimal capital structure after this financial crisis. That may mean that they choose to permanently hold more cash and maintain less debt than they had in the pre-2007 world. That means cash levels may fall as firms finally begin to invest, but they may not dwindle to pre-2007 levels. Moreover, that choice may not represent hoarding at all, but instead, a sound decision regarding capital structure.

12 comments:

則V哲維治 said...

很喜歡你的部落格,來給你加油,幫你推一下喔~期待你的下一個更新,謝謝.................................[/url]...............

佳呈均慧 said...

Some people cannot see the wood for the trees.............................................................

沈貞李添睿儀 said...

死亡是悲哀的,但活得不快樂更悲哀。. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

怡楊雯 said...

令人心動的好文章~~............................................................

蕾蕾 said...

人生是故事的創造與遺忘。............................................................

8468 said...

變天了~~注意身體,別感冒囉!............................................................

怡靜怡靜怡靜怡雯 said...

良言一句三冬暖,惡語傷人六月寒。............................................................

佳張張張張燕張張張張張 said...

一個人的際遇在第一次總是最深刻的,有時候甚至會讓人的心變成永遠的絕緣。......................................................................

Brian said...

What about all the hoarding that was already happening pre-2007?

This is pure empire building by management at these companies. Shareholders need to hold their Boards accountable.

孫邦柔 said...

上班好累哦,看看部落格轉換心情~~~先謝謝啦!!............................................................

孟湖聿軒 said...

睇完之後覺得有d頓悟..感謝大大分享..˙ 3˙............................................................

caffeine said...

You can see growth in corporate cash management services and realize the source of this growth. Corporate users of Money Market Portals are exploding.