Do U.S. Firms Have Abnormally High Cash Holdings?

The high cash holdings of U.S. public firms since the financial crisis have drawn considerable attention. The post-crisis average cash/asset ratio does not exceed its pre-crisis peak. The average cash/asset ratio does not increase in foreign countries after the crisis either, but throughout the 2000s, foreign firms hold less cash than American firms. Defining as normal cash holdings the holdings a firm with the same characteristics would have held in the late 1990s, we find that U.S. firms hold on average 1.86% of assets in the form of abnormal cash holdings after the crisis. In contrast, foreign firms hold negative abnormal cash holdings after the crisis of -0.18% of assets. While U.S. multinational firms experience an increase in abnormal cash holdings during the 2000s, the purely domestic firms do not. Strikingly, U.S. multinational firms held less cash than comparable domestic firms at the end of the 1990s, but now hold more cash than comparable domestic firms. If the high cash holdings of multinational firms were mostly explained by the adverse tax consequences of repatriation of foreign earnings, we would expect a decrease in their cash holdings as they took advantage of the tax holiday from the Homeland Investment Act of 2004 but we find no such decrease. Further, while multinational firms should increase their cash holdings after becoming multinationals, they do not appear to do so.