The global economic recovery could hit a roadblock thanks to a few hundred corporations hoarding copious amounts of cash, according to a new study from Deloitte.
As first reported in the Financial Times, 32% of the world’s top nonfinancial companies, including Apple, Google and Microsoft, are stockpiling 82% of their total cash holdings—about US$2.8 trillion. They are reportedly hoarding equity at the highest levels since 2000.
Companies have been hoarding cash at record amounts since the financial crisis as a precaution. However, if this behaviour continues, economists fear that it could slow down an economic recovery that finally begins to be gaining momentum.
“Looking ahead, the wave of cash that many are expecting will depend on the decisions of a few, rather than the many,” said Iain Macmillan, head of mergers and acquisitions at Deloitte.
The study comes as investors are calling for companies to increase spending. A separate survey of fund managers, conducted by Bank of America Merrill Lynch, showed 58% of investors want companies to spend cash on capex. A record 67% accused companies of underinvesting, while less than a third of asset managers surveyed want companies to return more money to shareholders.
Deloitte’s study also revealed that cash hoarding has hindered companies’ share prices and revenue growth. Companies with low cash balances have reportedly fared better. “Small cash holding companies which have been more aggressive in their pursuit of growth have seen their revenue growth and share price performance outperform their richer counterparts,” said Macmillan.
Cash-flow based metrics now feature prominently alongside traditional revenue measures of business performance in the key figures or financial summary pages of any public company.
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