The Rise of Corporate Net Lending Among G7 Countries: A Firm-Level Analysis

ABSTRACT

In recent decades, corporate net lending has been increasing in several developed countries. This paper discusses the impact of financialisation and income distribution on the level of net lending of listed non-financial corporations in G7 countries. We argue that financialisation affects the level of corporate net lending through firms' re-organisation towards a model of accumulation based on the maximisation of ‘shareholder value’ and through its negative impact on investment. Moreover, the reduction in the wage share can increase corporate capacity for liquidity accumulation, thus increasing the gap between corporate savings and investment, contributing to the rise in net lending. We test our hypotheses using panel data of publicly listed non-financial corporations for the period 1990–2015. According to our findings the process of financialisation has a positive impact on the level of net lending after 2001, while the wage share at the firm level has a strong negative impact on the level of net lending throughout the whole period.

KEYWORDS:

• Corporate net lending
• financialisation
• functional income distribution
• firm-level analysis

JEL CODES:

• O16
• E21
• E22

Acknowledgments

The author wishes to thank Marta Fana, Roberto Simonetti, Jan Toporowski, Dimitris Sotiropoulos, Andrew Trigg and four anonymous referees for their useful comments and suggestions. The usual disclaimers apply.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 E.g. Krugman (2013) and Davidson (2016) in The New York Times.

2 In order to ensure that this definition of savings does not alter the econometric results, regression analysis has been realised employing also the definition savings used by other studies on corporate net lending, such as Brufman, Martinez, and Pérez Artica (2013) and Dao and Maggi (2018).

3 Sales is chosen as a proxy of firms’ size and it was preferred to the number of staff because the Worldscope does not allow one to distinguish between full-time and part-time workers and because of the higher availability of data. Moreover, sales are commonly employed to proxy firms size in corporate finance research (e.g. Grullon, Larkin, and Michaely 2019; Autor et al. 2020) and net lending literature (e.g. Dao and Maggi 2018).

4 Figure 4 shows data only for those years in which there are at least 100 observations by country. For this reason, Japan is not reported at all for wages over sales, and certain countries have an incomplete series of results in one or both categories.

5 These outcomes are robust also when functional income distribution variables other than W_TA are employed in specification (8).