Wednesday, December 9, 2015

Federal Reserve Discussion Paper: "The Corporate Saving Glut in the Aftermath of the Global Financial Crisis"

From the Federal Reserve Board:
Abstract: We examine the increase in the net lending (saving minus investment) of non-financial corporations in the years preceding and especially following the Global Financial Crisis (GFC). We consider whether this increase in net lending is an endogenous reflection of the current weak pace of growth or an outcome of other factors, such as firms’ desire to cut investment and hoard assets, and thus an exogenous drag on growth. Looking at G7 economies, we find that the fall in corporate investment during the GFC was in line with historical norms, given the path of GDP growth, interest rates, prof its, and other relevant determinants. However, we find that investment declined from a surprisingly weak starting point, as corporate investment in many of the G7 economies started falling below our models’ predictions in the years before the GFC. Moreover, corporate payouts to investors in the form of dividends and equity buybacks have trended up over the past 1½ decades, inconsistent with the view that cautious firm s were cutting back on investment spending to strengthen their balance sheets. Identifying the causes of the ri se in corporate net lending and declines in investment rates starting in the years before the GFC should be an important focus of future research. 
HT: Billy Blog who does quite an analysis, his conclusion will shock you.
Sorry, I still have the clickbait guy from the prior post in my head.