The Rise of the Corporate Sector as Net Creditor: Financialisation and Functional Income Distribution in the G7 Countries

Villani, Davide (2020). The Rise of the Corporate Sector as Net Creditor: Financialisation and Functional Income Distribution in the G7 Countries. PhD thesis The Open University.

DOI: https://doi.org/10.21954/ou.ro.000116d6

Abstract

This thesis investigates the rise of corporate net lending in G7 countries for the period 1990-2015. This process implies that corporate savings are in excess of capital expenditure, so that, on average, firms can finance investment solely via internal funds. This novel development contrasts with the conventional assumption about the corporate sector being a net borrower. Despite the growing importance of this phenomenon, the causes that have contributed to the rise of corporate net lending are still open to debate. This thesis contributes to filling the existing gaps in the literature by examining two, so far unexplored, channels: the process of financialisation and the functional income distribution. To address these aspects, the research employs a big dataset of annual firm-level data of listed non-financial corporations from G7 countries. The empirical findings indicate that the process of financialisation and functional income distribution have played a significant role in the determination of the level of corporate net lending.

The capacity of firms to self-finance their investment also has important consequences for the economic and financial literature. In this respect, the thesis critically discusses the measure of External Financial Dependency. This measure is meant to reflect structural and technological characteristics of the industries that are assumed not to change over time and across countries. Despite the wide use of this concept in the economic and financial literature, there is little discussion about its theoretical foundations. This dissertation fills this gap, analysing the possible determinants of external financial dependency. It argues that the standard formulation of external financial dependency can be considered a proxy of corporate net lending that can fluctuate. This implies that the standard measure of external financial dependency does not uniquely reflect structural and unmodifiable technological features of the industries. Furthermore, after extending the original calculations to G7 countries covering a period of 35 years (1980-2015), the thesis demonstrates that the assumptions of stability over time and across countries find little empirical support.