A Re-Examination of Increasing Cash Holdings

Abstract

We reexamine the widely accepted phenomenon that U.S. corporations are holding increasing amount of cash in the last few decades. We document that increase in cash holdings (scaled by the market value of assets) is a smaller and narrower phenomenon. We find that the average amount of cash holdings went up from 9.6% during the period 1980-84 to 11.1% during 2010-14. We also find that most of the increase in cash holdings can be attributed to smaller firms and firms in only two sectors, namely, healthcare, and hitech sectors. Finally, we also document that this phenomenon of an increase in cash holding for the healthcare and hi-tech sectors is not random but spans the entire period in our sample.