A good cash stockpile has always provided companies with a strong insurance policy in uncertain times. But many multinationals are stuffing cash an increasingly bloated piggy bank for a different reason: to keep tax bills low.

Cash held by U.S. companies has mushroomed from $1.6 trillion at the turn of the century to about $5.8 trillion this year, according to Mitchell Petersen, a finance professor at Northwestern’s Kellogg School of Management. The pace of that growth, he tells me, has concerned investors who’d rather see that money put into operations or returned to them in dividends or buybacks.

As cash hoards grew, some argued that companies were prudently saving cash as a precaution or for future expansion. Others grumbled that multinationals were simply avoiding U.S. corporate taxes by squirreling funds in low-tax countries because repatriating profits to the U.S. would add to their tax burden.

In 2019, Petersen, along with Kristine Hankins at the University of Kentucky and University of Maryland’s Michael Faulkender, published a landmark paper confirming what many had long suspected: Big multinationals were in fact hoarding cash indefinitely in low-tax foreign jurisdictions. “They simply didn’t want to pay the tax. They would rather pay it later slash never,” Petersen says. “As a result, cash got trapped overseas.”

The Tax Cuts and Jobs Act that went into effect in January 2018 was aimed at reducing incentives to hoarding corporate cash overseas. Without getting into the weeds of the tax reforms–today is a Friday, after all–the law cut the corporate tax rate to 21% from 35% and generally eliminated taxes on foreign earnings repatriated to the U.S. There were, however, guardrails put in place (including the amusingly named GILTI tax) to prevent companies from shifting intellectual property overseas or otherwise erode their tax base.

But a funny thing happened. Instead of shifting more cash into domestic operations, most companies stashed even more money abroad. Cash positions of U.S. companies stood at $4 trillion in 2018, shortly after the tax reforms became law, but has since risen 48% to $5.9 trillion. So what’s going on?

In short, while multinationals have an easier time these days repatriating overseas profits, thanks to tax reform, those with intangible assets like software IP—including tech giants like Alphabet and Microsoft—still have an incentive to hold such assets in countries with low tax rates.

“They’ve lowered the U.S. tax rate and tried to incentivize firms not to move profits overseas,” University of Kentucky’s Hankins tells me. “But the incentives are still there to keep intellectual property assets abroad. Because even with the tax-law changes, there are still many tax jurisdictions that are lower than the US tax rate of 21%.”

Of course, the pandemic also threw a wrench into plans that many companies may have had to either invest in bold new R&D projects or to distribute repatriated profits to shareholders through dividends and buybacks. “The past year or so—with the pandemic, the war in Ukraine and the disruptions to supply chains—I think all of this has made companies very risk averse,” Petersen says.

What’s more, the uncertainty clouding the economic outlook is unlikely to dissipate any time soon given the increasing chance of a global recession. “When uncertainty rises, firms gravitate toward holding cash and delaying investment. That’s the standard pattern,” Hankins says. “In most recessions, you’ll see more cash holdings early on as firms start to draw down lines of credit until the uncertainty passes.”

Companies may also be waiting to see what new regulations could put the squeeze on their cash holdings. The Inflation Reduction Act before Congress would impose a minimum 15% corporate tax rate, a policy that President Biden has encouraged since taking office. Last year, the OECD finalized a tax deal in which 136 countries representing more than 90% of global GDP agreed to a minimum 15% tax rate starting next year.

Petersen and Hankins say it’s difficult right now to tell whether such initiatives will prompt companies to siphon some of their cash toward R&D or investors, or if companies will work harder to find loopholes or workarounds to avoid a global minimum 15% tax rate.

If regulations don’t help, there’s always the pressure applied from investor activists. It was Carl Icahn who pressured Apple to share some of its cash holdings with investors after complaining about the “massive amount of cash on the balance sheet.” Apple’s cash on hand has fallen to $193 billion last quarter from $267 billion in 2018.

Petersen offers some advice to CFOs: “Just be a responsible steward of the shareholders capital,” Petersen says. “That sounds like a platitude, but if you have all this money sitting around, think about it as the shareholders’ money. Because you could give it to them or you can invest for future growth.”

See you tomorrow.

Kevin Kelleher

Twitter: @kpkelleher

Big deal

Women working in corporate finance remain underrepresented in leadership roles. As a McKinsey report found last year, while women make up 52% of entry level finance jobs, their presence becomes scarcer as they move up toward the C-suite. This week, Emburse shed more light on the gender gap in finance leadership when it surveyed 523 U.S. corporate finance professionals across all experience levels. Male respondents were twice as likely to aspire to becoming CFO and three times more likely to want to become CFO. Women were almost twice as likely to report they are not looking to advance to higher leadership roles.

"Finance professionals have a seat at the table for a reason," Emburse said in its report. "They are called upon to represent an unparalleled perspective. It’s crucial then that they bring diverse perspectives to that table."

Courtesy of Emburse

Going deeper

On the topic of corporate taxes, Thomson Reuters released a report studying the impact technology is having on tax departments—particularly on workers expected to do more with fewer resources. While 73% of respondents expect to see changes in government tax requirements within two years, 57% lack the resources they need to do their jobs. "As a result," the report said, "older employees are retiring, mid-career professionals are fleeing more frequently, and younger workers are strongly indicating they want a better work/life balance." Nearly two in three tax-department workers agreed the biggest obstacle preventing them from achieving their professional development goals was lack of time.

Leaderboard

Chris Weber assumed the duties of CFO at Valaris, an offshore-drilling services company. He previously served as CFO of Lufkin, an oilfield-equipment manufacturer, and before that as CFO at Abaco Drilling Technologies, Halliburton, and Parker Drilling Company. Darin Gibbins, Valaris' vice president of investor relations, had served as interim CFO since last August, when Jonathan Baksht stepped down from the CFO role.

Manny Korakis was named CFO at Presidio, Inc., joining the digital-services company from IQVIA, a provider of advanced analytics, where he was chief accounting officer, controller, and treasurer. Before that, he held senior-level positions at American Express and S&P Global, where he was CFO of S&P 500 Down Jones indices.

Overheard

“The pandemic accelerated a number of trends, including the digitization of everything... So increasingly, we see semiconductor use everywhere. I think the demand cycle is very, very strong, and it's quite secular in terms of all the different markets. Now, when we get into the supply side, my personal opinion is that I think we're going to see bumpy waters for a while. And I think COVID is a big reason for that. The pandemic really turned a lot of things on its side, relative to demand projections.”

—Arm CEO Rene Haas, speaking with Fortune's Alan Murray and Ellen McGirt on their Leadership Next podcast. The computer-chip design firm has a front-row seat to the disruption in semiconductor supply chains, which has caused headaches from everyone from CFOs to auto and tech consumers for the past year.