March 4, 2008
Unlike Consumers, Companies Are Piling Up Cash
DIANA B. HENRIQUES
At least someone knows how to fill a piggy bank.
Unlike most American consumers, whose failure to save has exasperated economists for years, the typical
American corporation has increased its savings so sharply that it probably has enough cash on hand to
completely pay off its debts.
That should be good news in an economy unsettled by rising energy prices, tightening credit, gyrating stock
prices and declining values for the dollar and the family homestead. Indeed, the Federal Reserve chairman,
Ben S. Bernanke
, cited strong corporate balance sheets as a bright spot in the darkening forecast he
presented to Congress last week.
Some analysts also speculate that these cash-rich companies may start sharing their wealth with investors
through special dividends, providing welcome stimulus for the economy.
Corporate spending on equipment and other capital expenditures has declined as savings have soared,
suggesting that companies could stimulate the economy now by going on a hiring and spending spree. But
that raises worries among some analysts that companies will spend their cash unwisely, making them more
vulnerable in the future.
The increase over the last decade in the amount of cash, as a percent of total assets, for the companies in the
total cash held by companies in its industrial index exceeded $600 billion in February, up from about $203
billion in 1998.
René M. Stulz
, who holds the Reese chair in banking and monetary economics at the Fisher College of
Ohio State University
he conducted with two
on corporate cash
levels since 1980 indicated that growing cash holdings over that period most likely reflected the simple fact
that the world became a much riskier place for business.
“Companies responded to those rising risks by saving more,” said Professor Stulz, whose study excluded
utilities and financial companies because their cash reserves are monitored by regulators.
An even longer savings trend was spotted by
Jason DeSena Trennert
, managing partner and chief
investment strategist at Strategas Research Partners in New York, who said his own rough examination of
corporate balance sheets shows that “cash, as a percent of total assets, is as high as it’s been since the