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Corporate balance sheet adjustment: stylized facts, causes and consequences

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  • Guntram B. Wolff
  • Eric Ruscher

Abstract

We analyse corporate balance sheet adjustment episodes in Germany and Japan, as well as a sample of 30 countries, using national account data. Corporate balance sheet adjustment tends to be long lasting and associated with a strong impact on current accounts, wages and investment. Adjustment episodes lead to significant changes in corporate balance sheet ratios with a buildup of liquidity and a reduction of leverage. The adjustment is generally achieved by reducing investment and increasing savings on the back of a falling wage share. A panel econometric exercise shows that balance sheet adjustment periods are triggered by macroeconomic downturns as well as balance sheet stress due to high debt, low liquidity and negative equity price shocks.

Suggested Citation

  • Guntram B. Wolff & Eric Ruscher, 2012. "Corporate balance sheet adjustment: stylized facts, causes and consequences," Working Papers 696, Bruegel.
  • Handle: RePEc:bre:wpaper:696
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    Cited by:

    1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    2. Szilágyi, Katalin & Kiss, Áron, 2014. "Miért más ez a válság, mint a többi?. Az adósságleépítés szerepe a nagy recesszióban
      [Why is this crisis different?. The role of deleveraging in the great recession]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 949-974.
    3. Cussen, Mary & O'Leary, Brídín, 2013. "Why are Irish Non-Financial Corporations so Indebted?," Quarterly Bulletin Articles, Central Bank of Ireland, pages 104-118, January.
    4. Daniel Garrote & Jimena Llopis & Javier Vallés, 2013. "Los canales del desapalancamiento del sector privado: una comparación internacional," Occasional Papers 1302, Banco de España;Occasional Papers Homepage.
    5. Luiza Antoun de Almeida, 2015. "A Network Analysis of Sectoral Accounts; Identifying Sectoral Interlinkages in G-4 Economies," IMF Working Papers 15/111, International Monetary Fund.
    6. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    7. Barbosa, Diogo & Carvalho, Vitor M. & Pereira, Paulo J., 2016. "Public stimulus for private investment: An extended real options model," Economic Modelling, Elsevier, vol. 52(PB), pages 742-748.
    8. Douglas Sutherland & Peter Hoeller, 2012. "Debt and Macroeconomic Stability: An Overview of the Literature and Some Empirics," OECD Economics Department Working Papers 1006, OECD Publishing.
    9. Zsolt Darvas, 2012. "The euro crisis: ten roots, but fewer solutions," Policy Contributions 755, Bruegel.
    10. Cuerpo, Carlos & Drumond, Inês & Lendvai, Julia & Pontuch, Peter & Raciborski, Rafal, 2015. "Private sector deleveraging in Europe," Economic Modelling, Elsevier, vol. 44(C), pages 372-383.
    11. Marta Gómez-Puig & Simón Sosvilla-Rivero, 2017. "Nonfinancial debt and economic growth in euro-area countries," IREA Working Papers 201714, University of Barcelona, Research Institute of Applied Economics, revised Jul 2017.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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