"Concerned by allegations of hoarding, we looked at what corporations are really doing with their cash," says Cathy Gregg, a Partner at Treasury Strategies. "In addition to client discussions and surveys, we also looked at macroeconomic data. What we found was surprising."
Treasury Strategies analysis shows that corporate cash and GDP across the region rose almost in lockstep. However, in 2002 there was a dramatic shift that caused cash levels to grow more steeply than GDP for much of the ensuing decade. Today, corporate cash stands at Â£780 billion in the UK, and EUR 1.95 trillion in the Eurozone.
"Since this disconnect is clearly not a recent phenomenon, it is incorrect to tie high corporate cash levels to the financial crisis of 2008 or corporate behaviour since then," says Monie Lindsey, a Managing Director at Treasury Strategies who runs the firm's London office.
The firm has several hypotheses regarding the broken link. Lindsey notes one cause might be an increase of "trapped cash," which companies headquartered outside the region chose to not repatriate for tax or regulatory reasons. Another possibility is that financial executives have changed their view of prudent cash levels in a world of heightened unpredictability.
"In the end, many firms have consciously managed their working capital and maintained cash levels through rough economic waters. This positions them well for continued purposeful spending. It's a far cry from behaviour for which they should be criticised," says Lindsey.