The trend has emerged in the third quarter despite the improvements in economy, the Journal noted.
Holding large amount of cash is both a boon as well as a curse, the paper said. Hoarding means the companies are doing less spending and investing. But at the same time, it also means that by holding more cash the companies can start hiring and improve economy.
”Everyone is hoarding”
The report said that in the second quarter, 500 largest US firms held about $994 billion in cash and short-term investments (9.8 percent of their assets). In contrast, in the same period a year ago they held just $846 billion (7.9 percent of their assets).
Of those 500 firms, 248 have reported their third quarter results now, and their cash has increased to 11.1 percent of assets.
"Everyone is hoarding cash," said Carsten Stendevad, head of Citigroup Inc.'s financial-strategy group.
Rene Stulz, a finance professor at Ohio State University's business school, says, "Firms are riskier than they used to be, so they need a bigger security blanket." They are holding more of their assets in cash than the 1960s, when payment automation reduced the need to hold cash for daily operations, Stulz adds.
Kathleen Kahle, a professor at the University of Georgia's business school, says that younger firms have more difficulty in raising money so they keep more cash in hand. "At the same time, they have a lot of growth opportunities and want to make sure that they have the funds necessary to invest in good projects," she adds.
Big companies’ cash reserves
Companies like Google Inc, PepsiCo Inc., and Texas Instruments Inc. reported huge third-quarter increases in cash holdings, the paper said. Google’s cash and short-term investments rose by 53 percent from a year earlier in the third quarter.
The cash provides "operating and strategic flexibility," said Google Chief Executive Eric Schmidt. "We're very happy to have it sit in our bank account and earn a modest interest rate."
Baxter International Inc. increased its cash and short-term investments by $769 million, or 43 percent, between the second and third quarters.
PepsiCo Inc. plans to issue debt affecting its $3.5 billion cash and short-term investments. The cash total was $1.9 billion a year ago.
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