Blog Post

Corporate balance sheet adjustment: new stylized facts and its relevance for the euro area

We analyse corporate balance sheet adjustment episodes in Germany and Japan as well as a sample of 30 countries using national account data. Corporate balance sheet adjustment tends to be long lasting and associated with strong effects on current accounts, investment and wages. Adjustment episodes lead to significant changes in corporate balance sheets ratios with a built-up of liquidity and a reduction of leverage. The adjustment is generally achieved by reducing investment and increasing savings on the back of a falling wage share. A better understanding of corporate balance sheet adjustment processes is critical for understanding macroeconomic divergence within EMU.