Board of Governors of the Federal Reserve System

Figure 1. Average and Median Cash-to-Assets Ratio of Public U.S. Nonfinancial Firms

Figure 1 displays the evolution of cash-to-assets ratios for U.S. nonfinancial firms from 2000 to 2023. The graph shows two lines: a solid black line representing the median ratio and a dashed blue line representing the average ratio. Both lines exhibit an upward trend over the period, with a pronounced increase during the COVID-19 pandemic. The median ratio, which had remained relatively stable around 12 percent since the Great Financial Crisis, surged to a historic high exceeding 20 percent by mid-2021. The average ratio shows a similar pattern but at higher levels, surpassing 30 percent in 2021. The graph includes gray shaded areas indicating NBER recession periods, notably during the early 2000s, the 2008-2009 financial crisis, and the brief but sharp recession at the onset of the COVID-19 pandemic in 2020. This visualization effectively illustrates the dramatic increase in corporate cash holdings during the pandemic, particularly when compared to historical levels.

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Figure 2. Changes in the Average Cash-to-Assets Ratio by Financial Constraints

Figure 2 illustrates the changes in average cash-to-assets ratios for firms with different levels of financial constraints from 2018 to 2022. The graph contains two lines: a solid line representing more financially constrained firms (top third of the FC score) and a dashed line representing less constrained firms (bottom third of the FC score). Both lines show an increase during the COVID-19 pandemic period, starting in early 2020. However, the more constrained firms exhibit a steeper and more sustained increase in their cash-to-assets ratio. The gap between the two groups widens significantly during the late pandemic period (2021), indicating that more constrained firms continued to accumulate cash even as less constrained firms began to reduce their cash holdings. By the end of 2021, the cash-to-assets ratio for more constrained firms remains notably higher than pre-pandemic levels, while less constrained firms' ratios begin to trend back towards their pre-pandemic levels. This visualization demonstrates the differential impact of the pandemic on cash holding behaviors between more and less financially constrained firms.

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Figure 3. Change in Cash-to-Assets Ratio per 1-Point Increase in Financial Constraints Index

Figure 3 is a bar chart comparing the change in cash-to-assets ratio per one-point increase in the financial constraints index during the early and late pandemic periods. The chart contrasts firms in hard-hit industries (represented by red bars) with those in other industries (represented by grey bars). For the early pandemic period, the chart shows a negative red bar for hard-hit industries, indicating that more constrained firms in these sectors actually saved less cash than less constrained firms. In contrast, the grey bar for other industries is positive, suggesting that more constrained firms in these sectors increased their cash holdings. During the late pandemic period, both red and grey bars are positive, but the red bar for hard-hit industries is notably shorter than the grey bar for other industries. This indicates that while more constrained firms in all sectors increased cash holdings during this period, the effect was less pronounced in hard-hit industries. The chart effectively illustrates the differential impact of financial constraints on cash accumulation across industry types and pandemic phases.

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