Companies build a mountain of cash

Global firms have dramatically rebuilt their cash holdings in recent years, having a major impact on economic recovery from the global financial crisis.

This is according to Standard Life Investments' latest edition of Global Perspective: A mountain of cash, which identifies triggers which might encourage businesses to put cash to work.

The US seems to be the biggest culprit, with over $1 trillion held on balance sheets - about 11-12 per cent of market capitalisation.

The same trend has been seen across Asia, Europe, Latin America, and the UK, where the level of cash on corporate balance sheets is more than double that seen prior to the financial crisis.

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"Looking ahead, it is hard to see a sustained revival in any of the major economies unless companies start actively to put cash to work," said Andrew Milligan, head of global strategy at Standard Life Investments.

Corporate cash holdings have increased at the expense of such areas as capital spending, dividend payments, share buybacks and mergers and acquisitions, making it more difficult for fund managers to respond to the situation.

"We do expect [cash] to be put to work - more so in Americas and Asia, where growth prospects are positive, but less so in regions such as Europe where political and regulatory uncertainty is higher," Milligan said.

Some triggers to drop cash will be cyclical, Milligan said, but others are deeper seated, existing until the banking sector is ready to provide funding and "when memories of the 'credit crunch' fade from corporations".