Paper chase
Context and analysis show SA’s top firms are not hoarding cash
There are claims that South African companies are hoarding cash as a protest against the ANC government’s policies or lack of policy. A recent report by the University of Johannesburg’s Centre for Competition, Regulation and Economic Development found that cash reserves by the JSE’s largest 50 companies increased from R242bn to R1.4-trillion between 2005 and 2016. It says that companies are accumulating reserves and not investing in the economy. But is the analysis of trends in nominal cash holdings sufficient to conclude that companies are hoarding cash? Hoarding in this context is when a company holds cash more than it requires for its day-to-day operations. To test the claim, Intellidex undertook a study into cash holdings. In theory, a company’s optimal cash level occurs when the marginal cost of a cash shortage equals the marginal cost of holding cash. In other words, companies balance the costs of raising new cash through debt, sales of assets, or from shareholders against the...
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