While a looming recession may be expected to cause companies to get careful with their cash, Fitch Ratings says that a surge in corporate cash holdings is unlikely this time around.
In the past three recessions, U.S. corporate cash balances grew at double-digit rates, the rating agency said in a new report.
“This highlights the more conservative financial strategies companies take during economic stress,” it noted.
After the onset of the pandemic in particular, companies became extremely tight with cash, drawing on credit facilities, adding debt and tapping into an array of fiscal supports from governments.
“These were actions taken during other severe market dislocations, such as the 2008–2009 global financial crisis,” Fitch said.
Since then, cash balances have declined again “as pandemic risks subsided and companies pivoted toward debt repayment, growth investments and share repurchases,” it noted.
However, looking ahead to 2023, Fitch said that a rebound in corporate cash holdings is unlikely.
“Cash balances declined from pandemic peak levels but the absence of fiscal stimulus, rising interest rates and less capital market liquidity could limit companies’ ability or willingness to build large liquidity buffers,” it said.
As it stands, cash remains slightly above pre-pandemic levels, “providing some extra liquidity heading into a recession,” Fitch noted.