Why are companies in OECD countries self-financing their investment? – Natixis
|A spectacular development has taken place in the OECD as a whole: companies no longer have a borrowing requirement; instead, they now have a financing capacity: they are self-financing their investment - and beyond, explains Patrick Artus, Research Analyst at Natixis.
Key Quotes
“This completely changes the macro-financial equilibrium in OECD countries. But what caused it?”
“We can imagine three explanations:
- The increase in corporate self-financing in OECD countries is due to a change in the way labour markets function: wage earners’ loss of bargaining power has led to a skewing of income distribution in favour of profits; this change may be linked to companies’ very high required return on equity (RoE);
- Companies’ concern with the functioning of financial markets and banks (share prices are highly variable, the markets for corporate bonds and bank credit freeze up during recessions);
- A decline in investment in real terms or in the price of investment.”
“We find that all three explanations apply.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.