Why Has the U.S. Financial Sector Grown so Much? The Role of Corporate Finance
Thomas Philippon ()
No 13405, NBER Working Papers from National Bureau of Economic Research, Inc
The share of finance in U.S. GDP has been multiplied by more than three over the postwar period. I argue, using evidence and theory, that corporate finance is a key factor behind this evolution. Inside the finance industry, credit intermediation and corporate finance are more important than globalization, increased trading, or the development of mutual funds for explaining the trend. In the non financial sector, firms with low cash flows account for a growing share of total investment. I build a simple equilibrium model to capture these salient features and I use it to interpret the data. I find that corporate demand is the main contributor to the growth of the finance industry, but also that efficiency gains in finance have been important to limit credit rationing. Overall, the model can account for a bit more than half of the financial sector's growth.
JEL-codes: E2 G2 G3 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-mac
Note: CF EFG PR
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