13
Thereisalsoevidencethatfirmsthataccumulatecashtendto
report subpar operating performance, at least on average.
14
Extent of Cash Holdings
Cashholdingsvarywidelynotonlyacrosscompaniesatany
pointintimebutforthesamecompanyacrosstime.Togeta
sense of how much cash (and near-cash investments)
companies hold, we looked at three measures of cash
holdings.
1.Cashasapercentoftheoverallmarketvalueofthefirm.
Thisfirmvalueisdefinedasthesumofthemarketvaluesof
debtandequity.Figure10.1presentsthedistributionofthis
measureforcompaniesintheUnitedStatesinJanuary2005.
Whilethemedianis6.07percentforthisratio,morethan 300
firmshavecashinexcessof 50 percentoffirmvalue.Thereis
alsoasignificantnumberoffirmswherecashislessthan 1
percent of firm value.
2.Thesecondmeasureiscashasapercentofthebookvalue
of allassets. Thedifferencebetween thismeasure and the
previous one is that this one is scaledto the accountant’s
estimate ofhow mucha businessis worth rather thanthe
market’sjudgment.Figure10.2reportsonthedistributionof
cash to book value of assets for companies in the United
StatesinJanuary2005.Themedianforthismeasureis7.14
percent,slightlyhigherthanthemedianforcashasapercent
of firm value.