5-2 Which one?

http://www.economist.com/printedition/2012-11-03

ESG Season5 2nd meeting
DATE: 11th Nov. 2012 10:00-12:00
PLACE: Kanda, Tokyo
MEMBERS: Ogawa, Iino, Mizutani, Murakami, Shimada, Yoshida, Tokunaga

Corporate Savings

Dead money

Cash has been piling up on companies’ balance-sheets since before the crisis

from Finance and Economics

Why I picked up the article

Soft bank group has decided to invest 20 billion dollars on Sprint Nextel in the US. It was the biggest M&A case among Japanese companies. On the contrary, Most companies not only Japanese ones but also companies worldwide hesitate investing and save their capitals on their hands.

Discussion:

Should companies rather spend much money than save it?

How do the authorities make firms spend their saving to investment?

What the article says:

“Cash mountain of firms” "Grey swans"

(1)   the euro zone crisis 

(2) upheaval in the Middle East 

(3) a possible recession in China 

(4)America’s economic health and “fiscal cliff”

・Meddlesome federal regulations and America’s high corporate tax rate

・Natural resource companies è reflect high commodity price and luck of new supply

・Low interest rates è reduced borrowing cost and raised 1% profits

・The financial crisis è unreliable banks and securities markets

Rising corporate savings has deeper roots than the crisis, the commodities boom or interest rate cycle. Whatever the reason, firms have responded by substituting away from labor and toward capital and by more than textbook economic model imply. Even if they are loosening the purse string a bit, companies are unlikely to abandon their frugal way.

Other discussions

Our American Endorsement: Which one? from Leaders

Digital copy right: Pick a book from International (Yoshida)

State capitalism: Big Brother is back from Business (Shimada)