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Given all the scolding, nagging and finger wagging directed at corporate Canada for its unprecedented cash stockpiles, it's hard not to picture a bunch of Scrooge-like misers refusing to toss even the smallest lump of coal on the barely smouldering embers of the country's economic fires. But upon closer inspection, this may not be a case of businesses having become stingier over the short term – but, rather, the result of having become smarter over the long term.

A report Wednesday from economic think tank the C.D. Howe Institute argues that while some of Canada's estimated $600-billion corporate cash mountain does reflect a bit of hoarding – companies wanting to hold more cash after the 2008-09 credit crisis as a defence against future financial meltdowns – the cash buildup has more to do with decades of improvements in business efficiency.

The report's author, Finn Poschmann, wrote that revolutions in shipping efficiency, free trade and information technology have allowed companies to operate more efficiently and sharply reduce their inventories. For Canadian non-financial companies, inventories now represent just 8 per cent of total assets, down from 15 per cent a quarter-century ago, he said. Technological efficiencies have also reduced accounts receivable to 11 per cent of assets, from 14 per cent.

However, Mr. Poschmann argued, even as inventories and receivables (relatively liquid short-term assets, compared with fixed assets such as buildings and equipment) declined, companies still needed to keep their total levels of liquid assets in reasonable balance with their short-term liabilities. It only made sense, then, for cash holdings to fill the void on the asset side of the ledger. Cash now makes up nearly 8 per cent of Canadian non-financial corporate assets, up from 4 per cent in late 1980s.

Far from being a problem, he argued, this cash is a better alternative for the balance sheet – it is the most liquid of liquid assets, far easier to put to use in a crisis than inventories and receivables.

"The liveliness of corporate balance sheets has improved, not atrophied," Mr. Poschmann wrote. "In the absence of an apparent business or market failure, no policy concern, or response, is indicated."

Mr. Poschmann's observations shared some similarities with those of a recent report by Eric Lascelles, chief economist at RBC Global Asset Management. Mr. Lascelles noted that the costs of capital assets (plants, machinery, computer equipment, etc.) have been in decline since long before the 2008-09 recession – again, a product of technological advancements and globalization. The result has been both a decline in the amount companies must spend to maintain and expand their operations, and a rapid expansion in profits – both of which have fuelled corporate cash.

He noted that only about $56-billion of Canada's cash stockpile – less than 10 per cent – has been accumulated since the 2008-09 financial crisis, and "it is far from clear that firms are holding more cash than they should." At best, he suggested, only a "sliver" of Canada's $600-billion cash hoard is really "extra" cash that companies could inject into the economy.

"Still, when dealing with very large numbers, even a sliver can prove significant. This cash deployment should translate into a palpable 0.2- to 0.5-per-cent boost to the level of GDP, sustained over the next few years," he wrote.

"In the current environment, we'll take it."

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