Re: Doug Henwood on SS and equity shares

[dhenwood@xxxxxxxxx (Doug Henwood)]

At 5:18 PM 3/5/96, Basil Moore wrote [on equity finance]:

>Doug
>I also did some work on this a long time ago. I remember new issues while
>low as a share of total funds were quite volatile, and in some years were
>important. Companies cannot permanently finance 90 % of new investment
>internally, or that would imply debt ratios of 10 %. Don't I remember
>corporate debt ratios are about 50%?  Basil Moore

The stats are below. Over the longer term, there was a period in the late
1920s when equity financed about 20% of capital expenditures, but the
average for 1901-94 is 4.5%.

Large borrowings have been used to finance M&A more than investment. M&A
doesn't appear in the flow of funds accounts because no new assets are
created in a combination (i.e., there is no creation of wealth-creating
capital assets to offset the debt creation).

net new equity sales as percentage of capital expenditures,
  US nonfinancial corporations

    1952    9.6%
    1953    6.5%
    1954    6.8%
    1955    5.0%
    1956    5.7%
    1957    6.6%
    1958    7.0%
    1959    5.5%
    1960    3.6%
    1961    5.9%
    1962    0.9%
    1963   -0.8%
    1964    2.3%
    1965    0.0%
    1966    1.6%
    1967    3.3%
    1968   -0.2%
    1969    3.7%
    1970    6.5%
    1971   12.4%
    1972   10.3%
    1973    5.5%
    1974    2.3%
    1975    7.8%
    1976    6.2%
    1977    1.4%
    1978    0.0%
    1979   -2.8%
    1980    3.5%
    1981   -4.0%
    1982    0.7%
    1983    6.6%
    1984  -20.0%
    1985  -22.8%
    1986  -25.4%
    1987  -20.1%
    1988  -31.0%
    1989  -29.7%
    1990  -15.2%
    1991    4.9%
    1992    6.9%
    1993    4.8%
    1994   -8.5%
    1995  -11.7%

averages
1952-95    -0.9%
1952-79     4.4%


source:  computed from the Federal Reserve's flow of funds accounts, Sept
1995 diskette edition



Doug

--

Doug Henwood
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