According to a media report, American publicly traded companies are exhibiting a significant sign of economic uncertainty by accumulating cash reserves. Despite Americans depleting their pandemic-era savings, credit card and auto loan delinquencies have surged to levels not seen in over a decade, as reported by CNN.
Meanwhile, US corporations are holding onto their funds, increasing their cash reserves by 13% to $2.35 trillion in the first half of last year from $2.08 trillion at the end of 2022. Additionally, companies have reduced share buybacks, according to Moody’s Investors Service’s latest ‘Cash Pile’ report, as cited by CNN. This strategy comes with an opportunity cost, as companies could potentially earn higher returns by investing in their businesses or securities rather than keeping funds in low-interest deposit accounts.
Vijay Govindarajan, a professor at Dartmouth’s Tuck School of Business, explained that the motivation behind this trend is the prevailing uncertainty. He highlighted various factors contributing to this uncertainty, including the ongoing effects of COVID-19, geopolitical tensions such as conflicts in Ukraine and the Middle East, and the multitude of elections taking place worldwide. Govindarajan emphasized that in such unpredictable times, companies prioritize liquidity to maintain flexibility.