Firms’ Financial Surpluses in Advanced Economies: The Role of Net Foreign Direct Investments

26 Pages Posted: 5 Dec 2017

Date Written: November 29, 2017

Abstract

According to macroeconomic predictions firms are expected to be net borrowers: the net change of their financial assets should be smaller than the net change of their financial liabilities. However, since the mid-1990s, the non–financial sector has been on average a net lender in countries such as Japan, the UK, Germany and the Netherlands. Conversely firms remained on average net borrowers in countries such as France, Italy and the US. Using financial accounts, we investigate the sources of corporate sector surpluses and deficits applying panel data techniques. Our statistics include 18 industrial countries over the period 1995-2014. We find that firms’ surpluses are structurally linked to net foreign direct investments. The econometric results are robust to the use of variables that control for the business cycle, such as the output gap, the ratio of corporate investment to GDP, firms’ profits and leverage, and taxation.

Keywords: net lending/net borrowing, corporate sector, global saving glut, panel data

JEL Classification: E2, G3, F6

Suggested Citation

Cesaroni, Tatiana and De Bonis, Riccardo and Infante, Luigi, Firms’ Financial Surpluses in Advanced Economies: The Role of Net Foreign Direct Investments (November 29, 2017). Bank of Italy Occasional Paper No. 411, Available at SSRN: https://ssrn.com/abstract=3082209 or http://dx.doi.org/10.2139/ssrn.3082209

Tatiana Cesaroni

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Riccardo De Bonis (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Luigi Infante

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
35
Abstract Views
436
PlumX Metrics