Academics at BCU and the University of Hertfordshire have been working with officials in South Africa to provide an analysis of the landscape of corporate cash holdings across the country's firms.
Ewa Karwowski (University of Hertfordshire)
Over the past 10 years, South Africa was in a puzzling economic situation. While large corporations and banks were awash with liquidity, productive sector investment remained weak, real wages were stagnant, and levels of inequality were either extremely high or increasing. This situation was at odds with the policy responses to the 2007 global financial crisis, aimed at kick starting private-sector investment.
The opportunity cost of holding cash and low-yielding financial assets for non-financial corporations (NFCs) had become extremely low, raising volumes of liquid assets among NFCs.
This accumulation of corporate liquidity has important social implications: it can undermine productivity growth due to missing spending on production and innovation, dampen the creation of well-paid jobs, and contribute to inequality by inflating the value of corporate equity.
Together with the South African National Treasury (NT), we aim to provide an analysis of the landscape of corporate cash holdings across South African firms and identify some contributing factors.
This will provide insights as to how policy can be transformed to support NFCs so that firms can weather the crisis and use their accumulated resources to benefit society by investing and creating jobs.
The research proposes a new way of measuring financial resources accumulated by NFCs to provide a more accurate picture of which firms hold large amounts of cash and financial assets.
How will the research be carried out?
We will use unique data from the South African NT database generated from companies’ tax filings. The database is new and access-restricted, while data is confidential. We have been granted access by NT who supports this research project. The data will provide a complete picture of South African firms’ liquidity situation and identify likely determinants of cash holdings among South African NFCs.
Outcomes and impact
The findings of the project are expected to conclude in August 2021. The research output includes a working paper that will be published in the UNU-WIDER working paper series.
Our research will be of high policy relevance as the findings of our research will feed into the evidence-based policy formulation by the South African National Treasury.