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The Macroeconomics of Firms' Savings

Author

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  • Viktoria Hnatkovska

    (University of British Columbia)

  • Roc Armenter

    (Federal Reserve Bank of Philadelphia)

Abstract

The U.S. non-financial corporate sector became a net lender vis-a-vis the rest of the economy in the early 2000s. We document this fact in the aggregate and firm-level data. We then develop a structural dynamic model with investment to study the firms' financing decisions. Debt is fiscally advantageous but subject to a no-default borrowing constraint. Equity allows the firm to suspend distributions to shareholders 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 large fraction of firms with net savings observed in the period 2000-2007. We also find that the rise in corporate savings over the past 40 years can be mostly attributed to a fall in the cost of equity relative to debt, driven by lower dividend taxes.

Suggested Citation

  • Viktoria Hnatkovska & Roc Armenter, 2012. "The Macroeconomics of Firms' Savings," 2012 Meeting Papers 803, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:803
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    Cited by:

    1. Tito Boeri & Pietro Garibaldi & Espen R. Moen, 2014. "Financial Constraints in Search Equilibrium: Mortensen and Pissarides Meet Holmstrom and Tirole," CEP Discussion Papers dp1317, Centre for Economic Performance, LSE.
    2. Curtis, Chadwick C. & Garín, Julio & Saif Mehkari, M., 2017. "Inflation and the evolution of firm-level liquid assets," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 24-35.
    3. Zhiguo He & Péter Kondor, 2016. "Inefficient Investment Waves," Econometrica, Econometric Society, vol. 84, pages 735-780, March.
    4. Philippe Bacchetta & Kenza Benhima & Céline Poilly, 2019. "Corporate Cash and Employment," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 30-66, July.
    5. Ricardo Bebczuk & Eduardo Cavallo, 2016. "Is business saving really none of our business?," Applied Economics, Taylor & Francis Journals, vol. 48(24), pages 2266-2284, May.
    6. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2018. "Financial constraints in search equilibrium: Mortensen Pissarides meet Holmstrom and Tirole," Labour Economics, Elsevier, vol. 50(C), pages 144-155.
    7. Loukas Karabarbounis & Brent Neiman, 2012. "Declining Labor Shares and the Global Rise of Corporate Saving," NBER Working Papers 18154, National Bureau of Economic Research, Inc.
    8. Boeri, Tito & Garibaldi, Pietro & Moen, Espen R., 2014. "Financial Constraints in Search Equilibrium," CEPR Discussion Papers 10266, C.E.P.R. Discussion Papers.
    9. Martin Boileau & Nathalie Moyen, 2016. "Corporate Cash Holdings And Credit Line Usage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(4), pages 1481-1506, November.
    10. Michael Siemer, 2014. "Firm Entry and Employment Dynamics in the Great Recession," Finance and Economics Discussion Series 2014-56, Board of Governors of the Federal Reserve System (U.S.).

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