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Author(s): Eric Ruscher (European Commission) and Guntram Wolff (Bruegel)
Corporate balance sheet adjustment: stylized facts, causes and consequences(2 MB)
Using national account data, the paper analyses corporate balance sheet adjustment episodes in a sample of 30 countries.
Summary for non-specialists(470 kB)
Using national account data, we define corporate balance sheet adjustment episodes as periods during which major increases in non-financial corporations' net lending/borrowing are experienced. An analysis of such episodes in Germany and Japan, and a more systematic exploration of a sample of 30 countries, show that corporate balance sheet adjustment tends to be long lasting and associated with significant effects on current accounts, wages and investment. The adjustment is generally achieved by reducing investment and increasing savings on the back of a falling wage share. A panel econometric exercise shows that balance sheet adjustment periods are triggered by macroeconomic downturns as well as balance sheet stress due to high debt, low liquidity and negative equity price shocks.
KC-AI-11-449-EN-N (online) | |
ISBN 978-92-79-22970-1 (online) | |
doi: 10.2765/25700 (online) |
Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.
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