THE FINANCING INDUSTRIES OF 8 CONTRIES

FINANCING INDUSTRIES

There are two sources of information available for studies of aggregate corporate financing patterns in different countries. The first is national flow-of funds statements. These are records of flows between different sectors of an economy and between domestic and overseas residents. The relevant statement for this exercise is flows to and from nonfinancial enterprises. The second source is company accounts. These are constructed on an individual firm basis but are often aggregated or extrapolated to industry or economy levels. Both sources have their merits and deficiencies. In theory, flow-of-funds statistics provide a comprehensive coverage of transactions between sectors. Company accounts are only available for a sample, often quite small, of a country's total corporate sector. However, the data that are employed in company accounts are usually more reliable than flow-of-funds. As Appendix A describes, flow-of-funds are constructed from a variety of different sources that are rarely consistent. As a consequence, statistical adjustments are required to reconcile entries. As described in Mayer (1987, 1988) and Appendix B to this paper, the methodology employed in the Centre for Economic Policy Research Study of the Financing of Industry differs in several respects from that used by previous researchers. Greater emphasis is placed on flows of finance instead of stocks. Figures are recorded on a net (of accumulation of equivalent financial assets) as well as a gross funding basis. Financing proportions are aggregated over different time periods using a weighted as well as a simple average of individual years' proportions. Appendix B argues that these procedures achieve a greater degree of international comparability than has been available hitherto. In  report weighted and unweighted average financing proportions for the five countries of the international study (France, Germany, Japan, the United Kingdom, and the United States) and for Canada, Finland, and Italy using flow-of-funds statistics. In reports unweighted averages of net financing as a proportion of capital expenditures and stock building. Table 12.2 shows weighted averages of net financing using straight line depreciation over 16 years from 1970 to 1985. Table 12.3 records unweighted averages of gross financing as a proportion of total sources of finance.2 The weighted and unweighted averages are similar.


The United Kingdom has the highest proportion of retentions (107% excluding public enterprises, 97% including public enterprises on a weighted net financing basis). Italy has the lowest, but, even here, over half of investment in physical assets and stocks is funded from retentions. This is not just a consequence of the procedure of netting uses of finance from sources. Even on a gross basis U.K. corporations obtain just over 70% of their total sources from retentions and U.S. corporations just under 70%.


 the United Kingdom are not merely a consequence of low industrial growth. Two relatively high growth industrial sectors (chemicals and allied firms, and electrical engineering) recorded financing proportions that were equal to or in excess of those in other industries . However, there are marked differences in financing proportions of different size of firms within industries. Since 1977, the U.K. Department of Trade and Industry has categorized firms by two size groups: 

(1) large

(2) medium and small companies.below records the following:

Small- and medium-sized firms are considerably more reliant on external finance than large firms. A smaller proportion of small- than large-company finance comes from securities markets. Confirmation for the greater role of banks in small company financing comes from an examination of stock as well as flow proportions in table .