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.”