25% of Execs to Reduce Cash Holdings

1-in-4 Business Executives Say Their Companies Will Reduce Cash Holdings in Coming Year

Cash is still an important security blanket for U.S. businesses in the wake of the recession, yet one out of four Certified Public Accountants (CPAs) in senior finance positions say they expect their companies to reduce corporate cash holdings over the next 12 months, according to a recent survey by the American Institute of CPAs.

While a majority (60%) of survey takers said they plan to keep their cash holdings unchanged over that period, five percent said they planned to reduce their cash position significantly, according to the AICPA’s latest Economic Outlook Survey. Another 10% said they planned to reduce their holdings moderately, while 11% said they planned to pare them back a bit. In comparison, 15% of respondents said they planned to add to their cash holdings over the next year.

Respondents who indicated they would reduce cash holdings were asked what their companies planned to do with the money, with the following top choices (more than one category could be selected):

  • 45% said they will invest in capital projects
  • 25% said they expect to earmark a dividend or other equity distributions to shareholders
  • 18% said they will use cash to help fund acquisitions or other business transactions
  • 17% said they planned to reduce debt, while a similar percentage said they planned to fund business expansion or hiring.

Most business executives said their companies are not yet planning on shifting their allocation of cash due to regulatory changes next year that may make it harder to put cash in institutional money-market funds as a short-term tactic to ensure liquidity. The Securities and Exchange Commission, as part of reforms to prevent runs on money funds during a financial crisis, is requiring many prime institutional funds to shift from share values that are fixed at a traditional $1 to shares that float in value. Corporate money managers see the buck-a-share value as a useful hedge to protect short-term investments, but the funds would be far less attractive if values were updated daily. 

Some 63% of survey respondents said they are not reallocating cash yet in advance of the SEC-mandated changes, and another 30% said they are not sure of their plans. A small percentage said they are looking into short-term bond funding (3.9%) or government funds (3.3%) as alternatives to institutional money-market funds.