Is there a U.S. High Cash Holdings Puzzle after the Financial Crisis?

52 Pages Posted: 20 Apr 2013 Last revised: 18 Apr 2014

See all articles by Lee Pinkowitz

Lee Pinkowitz

Georgetown University - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Rohan Williamson

Georgetown University - McDonough School of Business

Date Written: April 19, 2013

Abstract

Defining normal cash holdings as the holdings a firm with the same characteristics would have had in the late 1990s, we find that the average abnormal cash holdings of U.S. firms after the financial crisis amount to 10% of cash holdings, which represents an 87% increase in abnormal cash holdings from before the crisis. The increase in abnormal cash holdings of U.S. firms is concentrated among highly profitable firms. Strikingly, abnormal cash holdings do not increase more for U.S. firms than for firms in advanced countries from before the crisis to after the crisis. Though abnormal cash holdings of U.S. multinational firms increase sharply in the early 2000s while cash holdings of purely domestic firms do not, there is no increase in abnormal cash holdings by U.S. multinational firms from before the crisis to after. Further evidence shows that the tax explanation for the cash holdings of U.S. multinational firms cannot explain the large abnormal holdings of these firms. In sum, while the high cash holdings of U.S. firms before the crisis are a U.S.-specific puzzle, the increase in cash holdings of U.S. firms from before the crisis to after is not.

Keywords: Cash Holdings, Multinational Corporations, Financial Crisis

JEL Classification: G32, F23

Suggested Citation

Pinkowitz, Lee Foster and Stulz, Rene M. and Williamson, Rohan G., Is there a U.S. High Cash Holdings Puzzle after the Financial Crisis? (April 19, 2013). Fisher College of Business Working Paper No. 2013-03-07; Georgetown McDonough School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=2253943 or http://dx.doi.org/10.2139/ssrn.2253943

Lee Foster Pinkowitz

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2689 (Phone)
202-687-4031 (Fax)

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

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