Non-financial Corporate Sector Research Articles

Decomposition of Productivity and Unit Costs

Labor productivity (output per hour) in the private nonfarm business sector is reported to have been rising at an annual rate of about 1 percent since 1973. At the same time, output per hour in the nonfinancial corporate sector is estimated to have been increasing at a 13/4-percent annual rate. Given that the nonfinancial corporate sector is about two-thirds of the aggregate, these statistics imply that output per hour elsewhere in private business has not increased, on average, for more than two decades. Because it seems unlikely that major sectors of the economy have failed to become more efficient over the years, it would be useful to try to identify at a more disaggregated level those segments of the economy with persistently dismal measured productivity performance. This paper presents such a disaggregation. The decompositions are by legal form of organization, with gross breaks within the corporate sector, and by detailed industry. For expository convenience, we refer to the former as the sectoral decomposition and the latter as the industry decomposition.

DID Japanese main banks improve the technical efficiencies of their non-financial client firms in the 1980s?

This paper tests the hypothesis that the Japanese main bank system was not effective in enhancing technical efficiency in the non-financial corporate sector in the 1980s. Technical efficiency is defined as the ratio of a firm's actual to its potential output for given input levels and technology. During the eighties, it did not improve consistently and significantly in Japanese manufacturing firms which have close ties to a main bank.

The Corporate Cost of Capital and the Return on Corporate Investment

We estimate two internal rates of return for the non-financial corporate sector: (i) the return on the initial market values of the securities issued by firms, and (ii) the return on the cost of their investments. The return on cost is the return delivered by firms on investment outlays. The return on value is an estimate of the overall corporate cost of capital, that is, the return on investment required by the capital market. The estimate of the corporate cost of capital for 1950-96 is 10.72 percent. The return on cost is larger, 12.11 percent, so on average corporate investment seems to be profitable. A byproduct of calculating these returns is information about the history of corporate earnings, investment, and financing decisions that is perhaps more interesting than the returns themselves.

The rate of return to corporate capital and factor shares: new estimates using revised national income accounts and capital stock data

Abstract This paper presents new evidence on the rate of return on tangible assets in the United States, incorporating the recently-revised national accounts as well as new estimates of the replacement cost of the reproducible physical capital stock. The pretax return on capital in the nonfinancial corporate sector has averaged 8.5 percent over the 1959–1996 period. The paper also presents new estimates of the total tax burden on nonfinancial corporate capital, which averages 54.1 percent over this time period. For the 1990s, this tax rate, which includes corporate income taxes, corporate property taxes, and taxes on stock-and bond-holders, averages 42.1 percent of pretax profits. The average pretax rate of return for the 1990–1996 period is 8.6 percent, and the average after-tax return is 5.0 percent. Although the accounting return to corporate capital has been higher in the mid-1990s than at any previous point in the last two decades, the substantial volatility in the return series makes it premature to conclude that these years represent a departure from past experience.

An empirical analysis of the unit labor cost-product price relation in the U.S. economy

This article tests for cointegration between unit labor costs and the level of product prices in four sectors of the U.S. economy: the aggregate business sector, the nonfinancial corporate sector, durable manufacturing, and nondurable manufacturing. A finding of cointegration for most specifications supports the existence of long-run labor market equilibrium for producers and suggests estimation of error-correction models to examine the dynamic relationships. In every sector except nondurable manufacturing, error-correction model estimates indicate there is a mutual feedback relationship between unit labor costs and prices. Controlling for deviations from full employment, oil price shocks, and the Nixon wage and price controls, the results also provide evidence of significant nominal wage indexation in U.S. labor markets. Throughout the economy there appears to exist both effective neoclassical wage and price adjustment mechanisms to maintain labor market equilibrium and short-run rigidities which may contribute to deviations from full employment outcomes.

UK stock relief legislation and the short run-tax elasticity of inventory investment

This paper analyzes the effects of UK stock relief legislation on the cost of capital for inventory investment, taking account of the tax position of individual companies. A sample of large UK companies, representative of the UK non-oil non-financial corporate sector, is used to make calculations of the cost of capital, both for aggregate corporate inventory investment and for various industrial sectors. Stock relief legislation reduces the cost of capital by between 4% and 8% per annum. The tax position of individual companies generally makes only a small difference to the aggregate cost of capital. Stock relief legislation induces a pronounced seasonality in the cost of capital due to the uneven distribution of the end-date of company accounting years. This seasonality is exploited in time-series estimates of the short-run elasticity on the pre-tax and post-tax cost of capital for six manufacturing subsectors. There is some evidence of a significant effect from the pre-tax cost of capital on inventory investment, but no evidence of any response to the tax incentives created by the stock relief legislation.

Private profit and public capital

This paper investigates the contribution of public capital services to the rate of profit. A profit rate is derived from a homogeneous production function with labor, public and private capital inputs. The data (for the U.S. nonfinancial corporate sector, 1958–1988) indicates a trend decline in the profit rate. Regression results show a significantly positive share of profits attributable to public capital, especially the state and local component; constant returns to scale in production; and a falling marginal productivity of public capital in the last decade. This study implies that increasing public investment may help to restore the profit rate and to raise output.

Determinants of Corporate Saving in Pakistan: A Macro-econometric Analysis

Firms behaviour with respect to retention and distribution of profits has received little attention in developing countries. Against the background of previous research on the subject, mainly in advanced industrial countries, the paper attempts a multivariate regression analysis of retention of profits in Pakistan, using time-series data relating to the country's non-financial corporate sector. The results support the applicability to developing countries of many of the hypotheses concerning this aspect of firms' behaviour which have found support in empirical research in the more advanced economies.