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The global rise of corporate saving

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  • Chen, Peter
  • Karabarbounis, Loukas
  • Neiman, Brent

Abstract

The sectoral composition of global saving changed dramatically during the last three decades. Whereas in the early 1980s most of global investment was funded by household saving, nowadays nearly two-thirds of global investment is funded by corporate saving. This shift in the sectoral composition of saving was not accompanied by changes in the sectoral composition of investment, implying an improvement in the corporate net lending position. We characterize the behavior of corporate saving using both national income accounts and firm-level data and clarify its relationship with the global decline in labor share, the accumulation of corporate cash stocks, and the greater propensity for equity buybacks. We develop a general equilibrium model with product and capital market imperfections to explore quantitatively the determination of the flow of funds across sectors. Changes including declines in the real interest rate, the price of investment, and corporate income taxes generate increases in corporate profits and shifts in the supply of sectoral saving that are of similar magnitude to those observed in the data.

Suggested Citation

  • Chen, Peter & Karabarbounis, Loukas & Neiman, Brent, 2017. "The global rise of corporate saving," Journal of Monetary Economics, Elsevier, vol. 89(C), pages 1-19.
  • Handle: RePEc:eee:moneco:v:89:y:2017:i:c:p:1-19
    DOI: 10.1016/j.jmoneco.2017.03.004
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    Cited by:

    1. Macnamara, Patrick, 2019. "Taxes and financial frictions: Implications for corporate capital structure," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 82-100.
    2. van Treeck, Till & Behringer, Jan, 2019. "The corporate sector and the current account," Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203632, Verein für Socialpolitik / German Economic Association.
    3. Andrea Caggese & Ander Perez, 2017. "Capital Misallocation and Secular Stagnation," Finance and Economics Discussion Series 2017-009, Board of Governors of the Federal Reserve System (U.S.), revised 17 Jan 2017.
    4. Florian Botte & Laurent Cordonnier & Thomas Dallery & Vincent Duwicquet & Jordan Melmies & Franck van de Velde, 2017. "The cost of capital: between losses and diversion of wealth
      [Le coût du capital : entre pertes et détournement de richesses]
      ," Working Papers hal-01711157, HAL.
    5. Behringer, Jan & van Treeck, Till, 2018. "Income distribution and the current account," Journal of International Economics, Elsevier, vol. 114(C), pages 238-254.
    6. Luigi Infante & Tatiana Cesaroni & Riccardo De Bonis, 2020. "Firms' financial surpluses in advanced economies: the role of net foreign direct investments," IFC Bulletins chapters, in: Bank for International Settlements (ed.),Using financial accounts, volume 51, Bank for International Settlements.
    7. Thorsten Klug & Eric Mayer & Tobias Schuler, 2018. "The Corporate Saving Glut and the Current Account in Germany," ifo Working Paper Series 280, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Ayşe İmrohoroğlu & Kai Zhao, 2020. "Household Saving, Financial Constraints, And The Current Account In China," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(1), pages 71-103, February.
    9. Bofinger, Peter & Ries, Mathias, 2017. "Excess saving and low interest rates: Theory and empirical evidence," CEPR Discussion Papers 12111, C.E.P.R. Discussion Papers.
    10. Saibene, Giacomo, 2019. "The corporate saving glut," Journal of Macroeconomics, Elsevier, vol. 62(C).
    11. Bolton, Patrick & Wang, Neng & Yang, Jinqiang, 2019. "Investment under uncertainty with financial constraints," Journal of Economic Theory, Elsevier, vol. 184(C).
    12. Loukas Karabarbounis & Brent Neiman, 2019. "Accounting for Factorless Income," NBER Macroeconomics Annual, University of Chicago Press, vol. 33(1), pages 167-228.
    13. Ignacio Hernando & Irene Pablos & Daniel Santabárbara & Javier Vallés, 2018. "Private saving. New cross-country evidencebased on bayesian techniques," Working Papers 1802, Banco de España;Working Papers Homepage.
    14. Allen, Cían, 2019. "Revisiting external imbalances: Insights from sectoral accounts," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 67-101.
    15. Ponomarenko, Alexey A. & Ponomarenko, Alexey N., 2018. "What do aggregate saving rates (not) show?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 12, pages 1-20.
    16. Jan Behringer, 2019. "Factor shares and the rise in corporate net lending," IMK Working Paper 202-2019, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    17. Antonia Lòpez-Villavicencio & Luis Antonio Reyes Ortiz, 2018. "Is globalisation taking away jobs? An empirical assessment for advanced economies," CEPN Working Papers halshs-01895223, HAL.
    18. Malamud, Semyon & Zucchi, Francesca, 2019. "Liquidity, innovation, and endogenous growth," Journal of Financial Economics, Elsevier, vol. 132(2), pages 519-541.
    19. Juliane Begenau & Berardino Palazzo, 2017. "Firm Selection and Corporate Cash Holdings," NBER Working Papers 23249, National Bureau of Economic Research, Inc.
    20. Antonia Lòpez-Villavicencio & Luis Antonio Reyes Ortiz, 2018. "Is globalisation taking away jobs? An empirical assessment for advanced economies," Working Papers halshs-01895223, HAL.
    21. Unger, Robert, 2018. "Revisiting the finance and growth nexus: A deeper look at sectors and instruments," Discussion Papers 55/2018, Deutsche Bundesbank.
    22. Galstyan, Vahagn, 2019. "Factor Income and the Euro Area Current Account," Economic Letters 8/EL/19, Central Bank of Ireland.
    23. Mai Chi Dao & Chiara Maggi, 2018. "The Rise in Corporate Saving and Cash Holding in Advanced Economies: Aggregate and Firm Level Trends," IMF Working Papers 18/262, International Monetary Fund.
    24. repec:psc:journl:v:11:y:2019:i:1:p:1-22 is not listed on IDEAS

    More about this item

    Keywords

    Corporate saving; Profits; Labor share; Cost of capital;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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