LONDON (Breaking Views) - To buy or to build? That is the question.

Companies around the world are flush with cash and generating more of it at a record pace. Having spent the leaner years of the 21st century repairing balance sheets, they then moved on to handing money back to investors. Now, however, they need to chase growth.

So chief executives are deciding whether to pump all that cash into their core businesses, or to go out and buy somebody else's. By and large, they appear to be leaning in the direction of buying over building, recent surveys by Goldman Sachs suggest.

While that may not be the right decision, it's pretty rational from the narrow perspective of executive motivation.

Capital spending is sure to rise from the past four years' drought, but no bonanza looks on the horizon.

Goldman asked 200 of its analysts what they thought companies would do with their cash. About half said they expect US companies to grow capital expenditure by 5 percent or less. In Europe the number was even higher.

A separate poll of Goldman's bankers found corporate bosses are more confident about doing mergers and acquisitions than they have been in years.

Taken together, one could conclude that corporations are more likely spend money buying rivals than making improvements to the businesses they have already got.

Theoretically, that seems odd. Stock market valuations are higher than they have been for years. A preference towards buying should come when assets are cheap. This suggests there are other important factors at work guiding the decisions of corporate executives.

First, they are taking their cue from investors. And while shareholders like to talk about long-term strategy, they may be more interested in the here and now.

Consider the way they have rewarded companies making big acquisitions of late. Johnson & Johnson, for example, is up nearly 10 percent since talks to acquire Guidant were made public.

With investors willing to reward companies for doing deals, it is rational for executives to pursue them. This is especially so when one considers that most corporate bosses will see the bulk of their compensation in stock and option grants.

Their behavior is logical. Whether it actually makes investors rich is a whole other question.