Friday, 7 September 2012

Are Companies Hoarding Cash?

Bank of Canada Governor Mark Carney created a stir on August 22 when he said that too many Canadian companies are hoarding cash rather than putting it to productive uses to help create economic growth.

Bank National has responded with their own report on the cash holdings of 327 publicly traded Canadian  companies that the bank follows (see here). Their research finds that these companies are holding about $55 billion in cash. A lot of money, but no where near the $500 billion or so that has been quoted by skeptics.

South of the boarder, we have a much clearer picture on how much cash US companies are hoarding. Thanks to publicly available Federal Reserve data we know that US companies are sitting on a little over $2 trillion in cash (see here). The interesting thing is that, in an historical context, this is not that much. Cash as a percentage of total assets actually bottomed in 1981.













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