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The macroeconomics of firms' savings

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  • Roc Armenter
  • Viktoria Hnatkovska

Abstract

The authors document that the U.S. non-financial corporate sector became a net lender in the 2000s, using aggregate and firm-level data. They develop a structural model with investment, debt, and equity. Debt is fiscally advantageous but subject to a no-default borrowing constraint. Equity allows the firm to suspend dividends when the cash flow is negative. Firms accumulate financial assets for precautionary reasons, yet value equity as partial insurance against shocks. The calibrated model replicates the prevalence of net savings in the period 2000-2007 and attributes the rise in corporate savings over the past 40 years to lower dividend taxes.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 12-1.

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Date of creation: 2011
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Handle: RePEc:fip:fedpwp:12-1

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Keywords: Corporations ; Debt ; Equity ; Dividends ; Taxation;

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  1. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, American Finance Association, vol. 50(5), pages 1421-60, December.
  2. François Gourio & Jianjun Miao, 2008. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics wp2008-002, Boston University - Department of Economics.
  3. Tim Opler & Lee Pinkowitz & Rene Stulz & Rohan Williamson, 1997. "The Determinants and Implications of Corporate Cash Holdings," NBER Working Papers 6234, National Bureau of Economic Research, Inc.
  4. Andrea Gamba & Alexander J. Triantis, 2007. "The Value of Financial Flexibility," Working Papers, Warwick Business School, Finance Group wpn07-02, Warwick Business School, Finance Group.
  5. Thomas W. Bates & Kathleen M. Kahle & Rene M. Stulz, 2006. "Why Do U.S. Firms Hold So Much More Cash Than They Used To?," NBER Working Papers 12534, National Bureau of Economic Research, Inc.
  6. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2002. "Corporate Liquidity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3499, C.E.P.R. Discussion Papers.
  7. David Thesmar & Mathias Thoenig, 2011. "Contrasting Trends in Firm Volatility," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 3(4), pages 143-80, October.
  8. Christopher Hennessy & Toni Whited, 2004. "Debt Dynamics," 2004 Meeting Papers, Society for Economic Dynamics 592, Society for Economic Dynamics.
  9. Leigh A. Riddick & Toni M. Whited, 2009. "The Corporate Propensity to Save," Journal of Finance, American Finance Association, American Finance Association, vol. 64(4), pages 1729-1766, 08.
  10. Brennan, Michael J & Schwartz, Eduardo S, 1984. " Optimal Financial Policy and Firm Valuation," Journal of Finance, American Finance Association, American Finance Association, vol. 39(3), pages 593-607, July.
  11. Ivo Welch, 2002. "Capital Structure and Stock Returns," Yale School of Management Working Papers, Yale School of Management ysm263, Yale School of Management, revised 01 Aug 2003.
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