Corporate saving has increased relative to GDP and corporate investment across the world over the past three decades, reflecting how the global decline in the labour has led to increased corporate profits. This column characterises these trends using national income accounts and firm-level data, and relates them to firm characteristics and the accumulation of financial assets. In response to declines in the components of the cost of capital, a model with capital market imperfections generates an increase in corporate saving similar to that found in the data.
Peter Chen, Loukas Karabarbounis, Brent Neiman, 05 April 2017
Philippe Bacchetta, Kenza Benhima, 24 August 2014
Among the various explanations behind global imbalances, the role of corporate saving has received relatively little attention. This column argues that corporate saving is quantitatively relevant, and proposes a theory that is consistent with the stylised facts and useful for understanding the current phase of global rebalancing. The theory implies that, while the economic contraction originating in developed countries has pushed interest rates towards the zero lower bound, the recent growth slowdown in emerging countries could push them out of it.
Charles Yuji Horioka, Akiko Terada-Hagiwara, 25 January 2014
Corporate saving has sharply increased over the last two decades, but there has been relatively little research on its determinants. This column presents recent work that estimates Asian firms’ cash flow sensitivity of cash. The impact of cash flow on the increase in firms’ cash holdings is positive and statistically significant, and larger and more highly significant for smaller firms. Since smaller firms are more likely to be financially constrained, these results suggest that Asian firms – especially smaller ones – save more when their cash flow increases in order to finance future investments