Corporate Cash Accumulation During the COVID-19 Pandemic

Cash holdings of U.S. nonfinancial (publicly traded) corporations increased notably during the recent COVID-19 pandemic. As depicted in Figure 1, the median cash-to-assets ratio (black, solid line) – which remained near 12 percent in the years following the Great Financial Crisis (GFC) – surged to a historic high of over 20 percent in mid-2021. The average cash-to-assets ratio (blue, dashed line) exhibited a similar rapid increase, surpassing 30 percent in 2021. In this note, we investigate the dynamics and cross-sectional variation of cash accumulation during the COVID-19 pandemic among U.S. nonfinancial firms. Understanding heterogeneity in savings behavior is particularly relevant in the context of the subsequent monetary tightening, as prior research suggests that cash can buffer against higher borrowing costs, and that the same firms which typically hold more cash—those that also experience greater difficulties raising financing from external sources—may also be more sensitive to higher interest rates.