What’s clear is that CEOs are still gripping a roughly $2-trillion hoard of cash and, collectively, refusing to do much with it at the moment. For example, even though stock values are getting whacked these days by the market’s slump, making companies’ own shares ever cheaper, there hasn’t been a correspondingly huge rush by CEOs to take advantage by launching stock buybacks.
What remains very ambiguous is exactly why: What do business chiefs see in their companies, their markets, around the world and in their crystal balls that has compelled them to continue to keep idle the cash that their companies have compiled since the Great Recession, and in some cases even before it?
Economic analysts and other pundits offer a number of rationales that CEOs seem to be using, some of them in combination. They include:
1. They’re wary of the future.As even the U.S. economy looks increasingly like it might be headed for a slowdown that would put it more in synch with slumps in China, Brazil and Europe, CEOs’ reticence to deploy any of their companies’ cash hoards looks like an increasingly credible hedge against future difficult times. “The past decade has been a period of increasing risk,” the New York Times noted, and maybe the next decade will be as well.
“The big countervailing factor is the uncertainty about the economy,” Douglas Skinner, professor of accounting at Chicago’s Booth School of Business, told the Wall Street Journal. “A lot of people are concerned that we are at an economic tipping point.”
Even if the American economy manages to avoid a downturn and worldwide performance picks up as well, CEOs and investors face a new set of risks tied to socioeconomic concerns that go far beyond the realm of traditional geopolitical hazards and have the potential to roil economic activity and financial markets,” as Citigroup put it, according to Bloomberg. These threats range from terrorism to the implications of the flood of Middle East refugees in Europe.
2. They don’t see worthy investments. Yes, both equity and debt markets haven’t offered much in the way of returns lately, suggesting that, as the Times noted, companies “would be better off investing in anything—a product, a service, a corporate acquisition—that would make them more than $0.02 of profit on the dollar [the rate on U.S. Treasury bonds], a razor-thin margin by corporate standards. And yet, they choose to keep the cash.” But this logic hasn’t swayed them, for reasons that aren’t entirely clear.
3. They leverage their cash hoard as an intimidation tool. The increasingly intense competition for talent and acquisitions, especially in pharmaceuticals and digital tech, means that CEOs battling to make the next big pickup can benefit from having a load of cash at their disposal—even if they don’t intend or need to use it right away. “Any other firm considering a competing offer may be scared off by their [seemingly] nearly infinite resources,” the Times said.
4. They are keeping their powder dry. Another theory is that the obverse of the previous idea is motivating some CEOs; they “think the next transformative innovation could be just around the corner” and they want to make sure their companies have enough financial resources to participate, the Times said. The major shifts in the economy through the 20th Century made it “clear that every company had to invest in the new thing that was coming,” whether it was the automobile or the Internet.
5. They’re waiting for a friendlier U.S. administration. CEOs in balance have made no secret of their animus toward President Obama and his administration for seeming to target not only specific business, such as the hydrocarbon-energy sector, for scorn and huge penalties, but also for retarding business activity and optimism as a whole with overregulation and with anti-growth economic policies. At this point, they’ll only have to wait another 10 months to see whether a more business-friendly president will take over and create a more friendly environment for corporate investment in America.