LyrArc Article Gist
The amount of cash companies are holding as a percentage of total assets is rising and is high has it has ever been since the 1960's. One study shows that the average cash ratio doubled from 1998 to 2004 as debt levels fell. According to S&P total cash held by compaies in its industrial index exceeded $600 billion in February up from 203 billion dollars in 1998. This was mentioned as a bright spot by Ben Bernanke amid the prevailing gloom about the credit crunch. But Prof Stulz and 2 other professors at Ohio State in a study show that this rise reflects the greater risk of doing business in a globalized economy and companies are holding higher levels of cash to reflect this. They hold smaller inventories and spending by tech companies which form a larger portion of the companies than before is more on research and development than on capital equipment. This shows up in the higher level of cash on hand for emergencies and as money for a rainy day.