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The Corporate Saving Glut in the Aftermath of the Global Financial Crisis

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  • Joseph W. Gruber
  • Steven B. Kamin
Abstract
We examine the increase in the net lending (saving minus investment) of nonfinancial 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, profits, 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 1-1/2 decades, inconsistent with the view that cautious firms were cutting back on investment spending to strengthen their balance sheets. Identifying the causes of the rise in corporate net lending and declines in investment rates starting in the years before the GFC should be an important focus of future research.

Suggested Citation

  • Joseph W. Gruber & Steven B. Kamin, 2015. "The Corporate Saving Glut in the Aftermath of the Global Financial Crisis," International Finance Discussion Papers 1150, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1150
    DOI: 10.17016/IFDP.2015.1150
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    References listed on IDEAS

    as
    1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2012. "External adjustment and the global crisis," Journal of International Economics, Elsevier, vol. 88(2), pages 252-265.
    2. Antonio Falato & Dalida Kadyrzhanova & Jae W. Sim, 2013. "Rising intangible capital, shrinking debt capacity, and the US corporate savings glut," Finance and Economics Discussion Series 2013-67, Board of Governors of the Federal Reserve System (U.S.).
    3. Ryan Niladri Banerjee & Jonathan Kearns & Marco Jacopo Lombardi, 2015. "(Why) Is investment weak?," BIS Quarterly Review, Bank for International Settlements, March.
    4. Eugénio Pinto & Stacey Tevlin, 2014. "Perspectives on the Recent Weakness in Investment," FEDS Notes 2014-05-21, Board of Governors of the Federal Reserve System (U.S.).
    5. repec:fip:fedgsq:y:2007:i:sep11 is not listed on IDEAS
    6. 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.
    7. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, vol. 59(1), pages 47-76, January.
    8. Christine Lewis & Nigel Pain & Jan Stráský & Fusako Menkyna, 2014. "Investment Gaps after the Crisis," OECD Economics Department Working Papers 1168, OECD Publishing.
    9. Ben S. Bernanke, 2007. "Global imbalances: recent developments and prospects," Speech 317, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Klug, Thorsten & Mayer, Eric & Schuler, Tobias, 2022. "The corporate saving glut and the current account in Germany," Journal of International Money and Finance, Elsevier, vol. 121(C).
    2. Beck, Thorsten & Peltonen, Tuomas & Perotti, Enrico & Sánchez Serrano, Antonio & Suarez, Javier, 2023. "Corporate credit and leverage in the EU: recent evolution, main drivers and financial stability implications," Report of the Advisory Scientific Committee 14, European Systemic Risk Board.
    3. Perotti, Enrico & Döttling, Robin, 2017. "Secular Trends and Technological Progress," CEPR Discussion Papers 12519, C.E.P.R. Discussion Papers.
    4. Jan Behringer & Till van Treeck, 2013. "Income distribution and current account: A sectoral perspective," IMK Working Paper 125-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. 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.
    6. Villani, Davide, 2021. "Revisiting the external financial dependence index in light of the rise of corporate net lending: What do we really measure?," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 361-376.
    7. Cédric Durand & Wiliiam Milberg, 2020. "Intellectual monopoly in global value chains," Review of International Political Economy, Taylor & Francis Journals, vol. 27(2), pages 404-429, March.
    8. Bahadir, Berrak & Valev, Neven, 2017. "Catching up or drifting apart: Convergence of household and business credit in Europe," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 101-114.
    9. repec:hal:cepnwp:hal-01850438 is not listed on IDEAS
    10. Saibene, Giacomo, 2019. "The corporate saving glut," Journal of Macroeconomics, Elsevier, vol. 62(C).
    11. Neuhann, Daniel & Sockin, Michael, 2024. "Financial market concentration and misallocation," Journal of Financial Economics, Elsevier, vol. 159(C).
    12. Ruppert, Kilian & Stähler, Nikolai, 2022. "What drives the German current account? Household savings, capital investments and public policies," Economic Modelling, Elsevier, vol. 108(C).
    13. Perotti, Enrico & Döttling, Robin, 2019. "Redistributive Growth," CEPR Discussion Papers 13984, C.E.P.R. Discussion Papers.
    14. Tong, Jiao & Bremer, Marc, 2016. "Stock repurchases in Japan: A solution to excessive corporate saving?," Journal of the Japanese and International Economies, Elsevier, vol. 41(C), pages 41-56.

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    Keywords

    Investment; Corporate Saving; Corporate Balance Sheets;
    All these keywords.

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