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

62 Pages Posted: 6 Nov 2015

See all articles by Joseph W. Gruber

Joseph W. Gruber

Federal Reserve Board - Division of International Finance

Steven B. Kamin

Board of Governors of the Federal Reserve System

Date Written: 2015-11-05

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.

Keywords: Investment, Corporate Saving, Corporate Balance Sheets

Suggested Citation

Gruber, Joseph W. and Kamin, Steven B., The Corporate Saving Glut in the Aftermath of the Global Financial Crisis (2015-11-05). FRB International Finance Discussion Paper No. 1150. Available at SSRN: https://ssrn.com/abstract=2686986 or http://dx.doi.org/10.17016/IFDP.2015.1150

Joseph W. Gruber (Contact Author)

Federal Reserve Board - Division of International Finance ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Steven B. Kamin

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-3339 (Phone)
202-736-5638 (Fax)

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