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Have U.S. Corporations Grown Financially Weak?

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  • Robert A. Taggart, Jr.
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    Abstract

    The feelingis widespread that the financial strength of U.S. corporations has eroded over the past twenty years. This trend is often blamed on some combination of the tax system, inflation and overly optimistic assessments of business risk.This paper examines recent corporate financing developments from along-run perspective. It is concluded that these developments appear less dangerous when viewed in the context of the twentieth century as a whole than when viewed in the context of the post-World War II years. A second major conclusion is that powerful corrective mechanisms are at work to keep corporate financial positions from becoming too risky. These forces have been particularly noticeable over the past ten years. Third, the effects on business financing of the tax system, inflation and business risk are difficult to trace in the aggregate data, and these effects may be less straightforward than has commonly been thought. Finally, it is argued that the degree of economic instability and the relative level of federal government borrowing will be key determinants of future corporate financing patterns.

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    File URL: http://www.nber.org/papers/w1523.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1523.

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    Date of creation: Dec 1984
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    Publication status: published as Taggart, Robert A., Jr. "Have U.S. Corporations Grown Financially Weak?" Financing Corporate Capital Formation, edited by Benjamin M. Friedman. Chicago: UCP, 1986, pp. 13-33.
    Handle: RePEc:nbr:nberwo:1523

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    1. Norman E. Mains, 1980. "Recent corporate financing patterns," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 683-690.
    2. John H. Wood, 1981. "Interest rates and inflation," Economic Perspectives, Federal Reserve Bank of Chicago, issue May, pages 3-12.
    3. Benjamin M. Friedman, 1982. "Debt and Economic Activity in the United States," NBER Chapters, in: The Changing Roles of Debt and Equity in Financing U.S. Capital Formation, pages 91-110 National Bureau of Economic Research, Inc.
    4. Benjamin M. Friedman, 1982. "Debt and Economic Activity in the United States," NBER Working Papers 0704, National Bureau of Economic Research, Inc.
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