It's too bad that companies like both IBM and Yahoo! didnt do a better job in capturing the startup market given the hoards of cash they both have.
Talk about 900 pound gorillas, they got their asses handed to them even though they could have funded every single startup in the valley over the last ten years and not put a dent in their reserves...
I'm curious to know why these companies with massive cash stockpiles seem to literally just sit on them.
Still, the argument is interesting to consider. Suppose it is 1995 and Microsoft it at the peak of its power, so you invest in Microsoft stock. Then 14 years go by. Now it is 2009. Google is rising in power. You want to get your money out of Microsoft, so you can invest it in Google. Does Microsoft have a legal obligation to give you all that it can? Or can Microsoft create Bing? Microsoft then creates Bing and loses more than $1 billion on it. You feel frustrated. Microsoft could have given that money to its shareholders, so you would have more money to invest in Google. But instead the money was wasted on Bing.
On the more general level, the question is, when one industry is in decline, and another industry is rising, who is responsible for shifting capital from the dying industry to the growing industry? Should individual investors do it, or should corporations do it?
You could argue that IBM is following the philosophy that all money should be given to the shareholders, so that the shareholders can reinvest the money wherever they feel best.
If MSFT has BILLIONS in the bank - why do they literally sit on the money instead of investing heavily in GOOG when GOOG is born?
I am not saying a company should give the money they have in the bank back to their shareholders to invest - I am saying why dont they actively invest in startups VERY AGGRESSIVELY as opposed to sitting on the money entirely.
Also, I am literally only talking about one industry - tech - so I am expecting that those that are in tech beget tech startups....
The answer is simple: companies are deferring their income tax payments in anticipation of an upcoming tax holiday year, which is the expectation given the decades' long history of past policy decisions. You don't want to be the CEO that paid a bunch in taxes when you could have just waited a few years and let the problem solve itself at no cost to your shareholders.
Second, if they did know that the Google business model would be successful they could just have copied it to out-google Google.
Nobody knows why companies just sit on money instead of investing it or creating new jobs.
It's not called a warchest for nothing, so although it might give competitors some pause, it does chap investors for not disbursing larger dividends or reinvesting in growth/m&a, and it additionally paints a larger bull's eye on them for capital extraction.
That is actually an interesting perspective.