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The macroeconomics of firms' savings

  • Roc Armenter
  • Viktoria Hnatkovska

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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File URL: http://www.philadelphiafed.org/research-and-data/publications/working-papers/2012/wp12-1.pdf
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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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  1. Andrea Gamba & Alexander J. Triantis, 2007. "The Value of Financial Flexibility," Working Papers wpn07-02, Warwick Business School, Finance Group.
  2. Leigh A. Riddick & Toni M. Whited, 2009. "The Corporate Propensity to Save," Journal of Finance, American Finance Association, vol. 64(4), pages 1729-1766, 08.
  3. Francois Gourio & Jianjun Miao, 2006. "Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-160, Boston University - Department of Economics.
  4. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2002. "Corporate Liquidity," CEPR Discussion Papers 3499, C.E.P.R. Discussion Papers.
  5. Whited, Toni M., 2006. "External finance constraints and the intertemporal pattern of intermittent investment," Journal of Financial Economics, Elsevier, vol. 81(3), pages 467-502, September.
  6. DeAngelo, Harry & DeAngelo, Linda & Whited, Toni M., 2011. "Capital structure dynamics and transitory debt," Journal of Financial Economics, Elsevier, vol. 99(2), pages 235-261, February.
  7. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
  8. Christopher A. Hennessy & Toni M. Whited, 2005. "Debt Dynamics," Journal of Finance, American Finance Association, vol. 60(3), pages 1129-1165, 06.
  9. David Thesmar & Mathias Thoenig, 2011. "Contrasting Trends in Firm Volatility," Post-Print hal-00635987, HAL.
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