Munich Personal RePEc Archive

Abnormal Retained Earnings Around the World

Alves, Paulo (2018): Abnormal Retained Earnings Around the World.

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Using a firm-level survey database covering 41 countries, we evaluate firms’ abnormal retained earnings. The results of our work show that the trends of cash holdings and retained earnings are independent. While cash holdings around the world are increasing, the opposite has occurred for retained earnings. We show that cash holdings are influenced by precautionary motive and retained earnings by firms’ growth opportunities. Abnormal retained earnings have risen with GDP growth and decreased following the 2008 financial crisis. This result also confirms the hypothesis of firms’ growth opportunities. US firms present positive abnormal retained earnings after the 2008 financial crisis, contrary to the remaining firms around the world. This can explain recent trends in the US stock market.

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