What are the causes of the growing trend of excess savings of the corporate sector in developed countries? An empirical analysis of three hypotheses.

Pérez Artica, Rodrigo and Brufman, Leandro and Martinez, Lisana (2013): What are the causes of the growing trend of excess savings of the corporate sector in developed countries? An empirical analysis of three hypotheses.

Abstract

We analyze a sample of manufacturing firms from Germany, France, Italy, Japan, and UK during the period 1997-2011, and find an increasing trend of excess savings (defined as the difference between gross saving and capital formation), and a gradual decline of gross capital formation. This trend is accompanied by a steady deleveraging process and a decrease in the share of operating assets in total assets. This process is more acute among the more credit constrained, the more volatile, and the less dynamic firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: formation, liquidity demand, financial leverage, financial constraints
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; G - Financial Economics > G3 - Corporate Finance and Governance

References

Acharya, V., Almeida, H., Campello, M.(2007). Is Cash Negative Debt? A Hedging Perspective on Corporate Financial Policies. Journal of Financial Intermediation, Vol. 16, 515-554.

Almeida, H., Campello, M., Weisbach, M. (2004). The Cash Flow Sensitivity of Cash. The Journal of Finance, Vol. 59, No. 4, 1777-1804.

Arikan, A., Stulz, R. (2011). Corporate Acquisitions, Diversification, and the Firm’s Lifecycle. Fisher College of Business WP 2011-03-018.

Bates, T., Kahle, K., Stulz,, R.(2009). Why do U.S. firms hold so much more cash than they used to?.The Journal of Finance, Vol. 64, Nº5, 1985-2021.

Baum, C., Caglayan, M., Ozkan, N., Talavera, O. (2006). The Impact of Macroeconomic Uncertainty on non-financial firms` demand for liquidity. Review of Financial Economics, Vol. 15, 289-304.

Baum, C., Caglayan, M, Stephan, A., Talavera, O (2008). Uncertainty Determinants of Corporate Liquidity. Economic Modelling Vol. 25 p. 833-849.

Brown, G., Kapadia, N. (2007). Firm-specific risk and equity market development. Journal of Financial Economics, Vol. 84, 358-388.

Campbell, J., Lettau, M., Malkiel, B., Xu, Y. (2001). Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk. The Journal of Finance, Vol. LVI, Nº 1, 1-44.

Campello, M., Graham, J., y Harvey, C. (2011), The real effects of financial constraints: Evidence from a financial crisis. Journal of Financial Economics, Vol. 97, 470–487.

Custodio, C., Ferreira, M., Laureano, L. (forthcoming), Why are US firms using more short-term debt?, Journal of Financial Economics, in press.

DeAngelo, H., DeAngelo, L., Skinner, D. (2004). Are dividends disappearing? Dividend concentration and the consolidation of earnings. Journal of Financial Economics, Vol. 72.425-456.

Denis, D., y Osobo, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, Vol. 89, 62-82.

Ellis, L., Smith, K., (2010), The Global Upward Trend in the Profit Share. Applied Economics Quarterly, Vol. 56,Nº 3, 231-256

Fama, E., French, K., (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics, Vol60, 3–43.

Fama, E., French, K., (2002). Testing tradeoff and pecking order predictions about dividends and debt. Review of Financial Studies, Vol 15, 1–33.

Fazzari, S., Hubbard, G, Petersen, B (1988).Financing constraints and corporate investment, Brooking Papers on Economic Activity 1, 141-195.

Graham, J. (2000). How big are the tax benefits of debt? Journal of Finance, Vol 55, 1901–1941.

IMF (2006). Awash with Cash: Why are Corporate Savings So High?, World Economic Outlook. April, 135-159.

International Institute for Labour Studies ( 2011). Making profits work for investment and jobs. En World of Work Report 2011. International Institute for Labour Studies-International Labour Organization, 31-54.

Irvine, P., Pontiff, J. (2008). Idiosyncratic return volatility, cash flows, and product market competition. Review of Financial Studies, Vol. 22, 1149–1177.

Jensen, M. (1986), Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers. The American Economic Review, Vol.76, Nº 2, 323-329.

Jensen, M. (1989). The eclipse of public corporation. Harvard Business Review, Septiembre-Octubre, 61-74.

Kahle, K., Stulz, R. (2013), “Access to capital, investment, and the financial crisis” ,Journal of Financial Economics, in press.

Kaplan, S., Zingales, L. (1997). Do financing constraints explain why investment is correlated with cash flow? Quarterly Journal of Economics, Vol. 112, 169-215.

Krishnamurthy, A., Vissing-Jorgensen, A. (2010).The Aggregate Demand for Treasury Debt. NBER Working Paper No. 12881.

OECD (2007), Corporate Savings and Investment: Recent Trends and Prospects, OECD Economic Outlook, Vol. 82.Preliminary Edition.

Opler, T., y Titman, S. (1991). The Determinants of Leveraged Buyout Activity: Free Cash Flow vs. Financial Distress Costs. The Journal of Finance, Vol. 48, No. 5, 1985-1999

Pozsar, Z. (2011). Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System, IMF Working Paper 11/190.

Von Kalckreuth, U. (2000). Exploring the role of uncertainty for corporate investment decisions in Germany. Deutsche Bank, Discussion Paper 5/00.

Wei, S., Zhang, C., (2006). Why Did Individual Stocks Become More Volatile?, The Journal of Business, Vol. 79, No. 1, 259-292.

Whited, T., Wu, G. (2006).Financial Constraints Risk. The Review of Financial Economics, Vol. 19, Nº2, 531-559.