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Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Is the US Public Corporation in Trouble?

  • Kathleen M. Kahle
  • René M. Stulz
Journal of Economic Perspectives
vol. 31, no. 3, Summer 2017
(pp. 67–88)
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Abstract

We examine the current state of the US public corporation and how it has evolved over the last 40 years. After falling by 50 percent since its peak in 1997, the number of public corporations is now smaller than 40 years ago. These corporations are now much larger and over the last twenty years have become much older; they invest differently, as the average firm invests more in R&D than it spends on capital expenditures; and compared to the 1990s, the ratio of investment to assets is lower, especially for large firms. Public firms have record high cash holdings and, in most recent years, the average firm has more cash than long-term debt. Measuring profitability by the ratio of earnings to assets, the average firm is less profitable, but that is driven by smaller firms. Earnings of public firms have become more concentrated—the top 200 firms in profits earn as much as all public firms combined. Firms' total payouts to shareholders as a percent of earnings are at record levels. Possible explanations for the current state of the public corporation include a decrease in the net benefits of being a public company, changes in financial intermediation, technological change, globalization, and consolidation through mergers.

Citation

Kahle, Kathleen M., and René M. Stulz. 2017. "Is the US Public Corporation in Trouble?" Journal of Economic Perspectives, 31 (3): 67–88. DOI: 10.1257/jep.31.3.67

Additional Materials

JEL Classification

  • D22 Firm Behavior: Empirical Analysis
  • F23 Multinational Firms; International Business
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
  • L25 Firm Performance: Size, Diversification, and Scope
  • O33 Technological Change: Choices and Consequences; Diffusion Processes
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