Anjali Sharma
GG News Bureau
NEW YORK, 9th Feb. According to news media reports on Thursday the US publicly traded companies are showing a key sign of economic uncertainty they’ve been hoarding cash.
Americans have spent down their pandemic-era savings and then somecredit card and auto loan delinquencies have not only surpassed pre-pandemic levels, they’re the highest they have been in more than a decade.
US corporations are clinging to their money they increased their cash on hand through the first half of last year by 13 per cent to $2.35 trillion from $2.08 trillion at the end of 2022. Firms also cut back on share buybacks, according to the most recent ‘Cash Pile’ report from Moody’s Investors Service, news media reported.
It said that there’s a high opportunity cost to holding onto cash.
Companies can potentially earn higher returns investing in their own business or in securities than they can from the relatively low interest rates on deposits.
The companies with existing and expensive debt in a high-interest rate environment would likely want to use their cash to pay it down.
Vijay Govindarajan, professor at Dartmouth’s Tuck School of Business said the impetus “is the level of uncertainty that we are facing”.
“From Covid to the wars [in Ukraine and the Middle East], there is a lack of predictability all over the world. About 60 countries have elections this year, and even the concept of democracy is in question,” he said.
Govindarajan said that uncertainaty is why companies want to keep their assets liquid – so that they have maximum flexibility in a world that is highly unpredictable.
