Corporate Financing in Canada∗
Apostolos Serletis† and Karl Pinno
Department of Economics
University of Calgary
Calgary, Alberta, T2N 1N4,
Canada
February 10, 2004
Abstract
This paper builds on recent empirical work by Mayer (1988, 1990),
Corbett and Jenkinson (1996, 1997), Schmidt (2001), and Hackethal
and Schmidt (2003) to investigate the sources of finance for physical
investment in Canada. We find evidence to support the view that
that financing patterns in Canada are different than those in Germany,
Japan, and the United States and it is not as easy to classify Canada as
being either ‘bank-based’ or ‘capital market-based.’ However, there is
a trend towards smaller proportions of intermediary finance and larger
proportions of market finance.
Keywords: Financing patterns; Financial structure.
JEL classification: C22, F33
∗
We would like to thank Professors Jenny Corbett, Tim Jenkinson, Andreas Hackethal
and Reinhard Schmidt for their sharing and helpful comments. We would also like to
thank Charles Wright, Jacques Lanthier, Jeannie D’Angelo, Anne-Marie Bridger, and
Patrick O’Hagan at Statistics Canada and Elizabeth Woodman and Rick Baggio of the
Bank of Canada for their help with data issues. Serletis also gratefully acknowledges
financial support from the Social Sciences and Humanities Research Council of Canada.
†
Corresponding author. Phone: (403) 220-4092; Fax: (403) 282-5262; E-mail: Serletis@ucalgary.ca; Web: http://econ.ucalgary.ca/serletis.htm.
1
1
Introduction
As Hackethal and Schmidt (2003) put it in the abstract to their paper, “a
widely recognized paper by Colin Mayer (1988) led to a profound revision
of academic thinking about financing patterns of corporations in different
countries. Using flow-of-funds data instead of balance sheet data, Mayer and
others who followed his lead found that internal financing is the dominant
mode of financing in all countries, that financing patterns do not differ very
much between countries and that those differences which still seem to exist
are not at all consistent with the common conviction that financial systems
can be classified as being either bank-based or capital market-based.”
Previous to Mayer’s research much of the empirical work on financing patterns and financial structure used balance sheet information from individual
companies and made many adjustments (most of them arbitrary) for international comparisons. Mayer used flow-of-funds data (from the OECD) to
calculate net sources of funds and found that securities markets contribute
a small proportion of corporate sector financing and that the majority of
external finance comes from banks. Subsequent research by Corbett and
Jenkinson (1996, 1997), which also used net flows based on flow-of-funds
data from national income accounts, confirmed Mayer’s earlier conclusions.
As Corbett and Jenkinson (1997, p. 85) conclude “the celebrated distinction
between the ‘market-based’ financial pattern of the United Kingdom and
the United States and the ‘bank-based’ pattern of Germany and Japan is
inaccurate.”
These results are important because (as already noted) they challenge
established views that financial systems can be classified as being either capital market-based (as those of the United Kingdom and the United States)
or bank-based (as those of Germany and Japan). Moreover, they lead to
a research puzzle, known as the ‘net-flow puzzle,’ insofar as they seem to
question the widely held belief that there is a correspondence between the
financing patterns of enterprises in a given country and that country’s legal
and financial environment – see, for example, La Porta et al. (1997, 1998)
Demirguc-Kunt and Maksimovic (1996, 1998, 1999), Booth et al. (2001),
Rajan and Zingales (1995, 1998), and Wurgler (2000).
In addressing the ‘net-flow puzzle,’ Hackethal and Schmidt (2003, p. 2)
argue that “all studies that rely on aggregate net flows of funds between economic sectors make one critical implicit assumption concerning the question
which sources of funds finance which uses of funds. It is assumed that new
2
external funds like bank loans to the enterprise sector are first used to repay
any outstandings of the same type of financial instrument and that only the
remainder, i.e., the net flow from the banking sector to the non-financial enterprise sector in a given period, which may be positive or negative, is used
for financing real investment. Because by definition internal funds do not
have to be repaid, they are assumed to fully flow into investment.” They
show that this arbitrary assumption is not warranted and it is responsible
for the results at which Mayer and his followers arrive – overestimating the
role of internal finance and underestimating that of external finance.
Hackethal and Schmidt (2003) argue that gross flows are more appropriate than net flows in measuring the role of the various external sources of the
financing of investments and that by using gross flows one eliminates the bias
that results in favor of internal finance when net flows are used. They derive
an alternative method of measuring financing patterns based on gross flows,
which also uses flow-of-funds data, and show that there are significant differences between the financing patterns in the world’s three largest economies
– Germany, Japan, and the United States. In fact, they argue that the
celebrated distinction between ‘bank-based’ and ‘market-based’ patterns of
financing is not inaccurate, as Corbett and Jenkinson (1997) concluded.
Hackethal and Schmidt (2003, p. 24-25) argue that the results of their
paper “point to a number of very interesting research opportunities. First
and foremost, it would be interesting to see similar analyses of financial
patterns of other countries emerge. Since our study covers countries for which
one can assume that the basic characteristics of their financial systems are
largely stable, we would particularly recommend to investigate how financial
patterns develop in countries, such as France, in which the character of the
financial system has undergone a massive transformation in the course of the
last 20 years. It would be equally fascinating to learn more about the way
in which non-financial firms finance their investments in countries like the
Netherlands whose financial systems cannot as easily as the U.S., Japan and
Germany be classified as being either bank-based or capital market based.”
In this paper, we take up Hackethal and Schmidt on their suggestion
and investigate the sources of finance for physical investment in Canada. In
doing so, we provide a set of data on the patterns of finance to enable consistent international comparisons and use two methods of measuring financing
patterns (both using flow-of-funds data based on the national income accounts) – the net flows approach of Corbett and Jenkinson (1996, 1997)
and the gross flows approach of Hackethal and Schmidt (2003). Moreover,
3
we investigate whether any trends have developed in corporate financing patterns in Canada as a result of the recent globalization of finance, advances
in information and computer technologies, and financial system reform and
modernization.
The rest of the paper is organized as follows. In the next section we
apply the Mayer (1990) and Corbett and Jenkinson (1996, 1997) method (of
measuring financing patterns based on net flows) to the enterprise sector in
Canada and present the empirical results. In doing so, we address the relative
importance of the different sources of finance and provide a comparison with
the countries used by Corbett and Jenkinson (1997) – Germany, Japan, the
United Kingdom, and the United States. In Section 3 we apply the Hackethal
and Schmidt (2003) new measurement concept (based on gross flows) to offer
a more accurate look at financing patterns of corporations in Canada and
to provide a comparison with the countries used by Hackethal and Schmidt
(2003) – Germany, Japan, and the United States. The last section concludes
the paper.
2
Net Flows
In this section we follow Corbett and Jenkinson (1996, 1997) and use flowof-funds data from the national income accounts to determine how physical
investment is financed in Canada. In Table 1, reproduced here from Corbett
and Jenkinson (1996), we demonstrate the sources and uses of funds approach
to investigating financial structure issues based on the net flows approach of
Corbett and Jenkinson (1996, 1997). As shown in the lower part of Table
1, in order to establish the net finance from various sources we subtract the
acquisition of financial assets from increases in equivalent liabilities.
To identify the sources of finance for physical investment in Canada, the
natural place to begin is with the data from the flow of funds accounts for
private non-financial corporations, listed in Table 2 along with their CANSIM
II series numbers. We use non-financial investment (5) as physical investment
and calculate internal funds as the difference between gross saving (1) and
capital transfers (4). In keeping with the methods employed by Corbett and
Jenkinson (1996, 1997) we have deflated physical investment using a capital
goods deflator – the Industrial Price index, CANSIM II series V3822562,
scaled to 1990 dollars. All other series reported in Table 2 were deflated
using a GDP deflator – CANSIM II series V3860248, scaled to 1990 dollars.
4
In Table 3 we present the Canadian flow of funds using the information
from Table 2. The liability flows are counted as a source of funds while the
corresponding asset flows are counted as a use of funds and their difference
is considered to be the net contribution of funds. In order to facilitate comparisons with the countries used by Corbett and Jenkinson (1997), net flows
of financial instruments are placed in categories like ‘Intermediary finance,’
‘Bonds,’ ‘Equity,’ ‘Trade credit,’ ‘Corporate claims,’ and ‘Other.’ The Intermediary finance category includes items 12, 13, 14, 17, 20, 31, 32, and 34.
The Bonds category contains items 21, 22, 23, 24, 27, and 35. The Trade
credit category includes items 15, 16, and 30. The Equity category includes
items 26 and 37, the Corporate claims category items 25 and 36, and the
Other category items 18, 19, 28, 33, and 38.
We follow the convention of Corbett and Jenkinson (1997) in calculating
and reporting (in Table 4) our results for Canada over successive five-year
periods (in order to assess how financing patterns have changed over the
years) and over the period as a whole (in the last column of the table).
Over the period as a whole, 95% of physical investment was funded from
internal funds. Banks and near banks have apparently been small providers
of finance for physical investment (9.2% of the funds), secondary to both the
equity markets (22.6%) and bonds markets (10.7%). A striking result in the
data of Table 4 is the steady increase in the use of market sources of finance
and particularly equity finance.
Another notable feature of the flow of funds estimates of Table 4 is that
the contributions of internal and intermediary finance are linked, as can be
seen in Figure 1, which shows a negative correlation between the contributions of internal funds and intermediary finance to funding physical investment. Moreover, there is some evidence of a countercyclical trend in the use
of internal sources as the contribution of internal funds tends to increase in
years of low investment, consistent with the findings by Corbett and Jenkinson (1997) for Germany, Japan, the United Kingdom, and the United States.
We now consider how financing patterns in Canada compare to those
in Germany, Japan, the United Kingdom, and the United States – the
countries used in the Corbett and Jenkinson (1997) study. The first striking
result in the (net) flow of funds estimates of Table 5 is the reliance on internal
finance in Canada, the United Kingdom, and the United States; in fact
Canada has the second highest share of internal finance after the United
States. Another feature is the relatively small contribution of intermediary
finance in Canada; only 9.2% of physical investment was funded by financial
5
institutions, compared to 11.1% in the United States, 11.9% in Germany,
14.6% in the United Kingdom, and 26.7% in Japan.
Canada, however, has the second highest share of bond finance (10.7%)
and the highest share of equity finance (22.6%) – in fact, equity has been
a net use rather than a source of funds for the United Kingdom (-4.6%)
and to a larger extent the United States (-7.6%). It should be noted that
for Canada we have a category, ‘Corporate claims,’ not found in the other
countries. According to the national accounts manual, on the asset side
this category covers investment in shares, marketable debt securities and
loans and advances in associated corporations whereas on the liability side it
excludes shares issued to associated corporations because they are reported
separately in the shares (37) category. This bias (of not including the source
of related company shares in corporate claims) is likely to overestimate the
proportion of equity finance in real investment in Canada.
The most obvious conclusion from this discussion of measuring financing
patterns on the basis of net flows is that internal finance is the dominant
mode of finance and that the pattern of finance in Canada is very similar to
financing patterns in other countries, consistent with the findings by Mayer
(1990) and Corbett and Jenkinson (1997).
3
Gross Flows
Hackethal and Schmidt (2003) argue that gross flows are more appropriate
than net flows in measuring the role of various forms of external financing
and that by using gross flows one eliminates the bias that results in favor of
internal finance when net flows are used. In particular, in the Hackethal and
Schmidt (2003) gross flows approach, all funds (both internal and external)
are treated equally and the collective ‘pot’ of gross funds could be used to
repay past debts or finance new investment. If data on gross flows for an
instrument i are not directly available, they are estimated using level data
for the instrument (from the national balance sheet accounts), growth rates
in the level data, and the average maturity of the instrument, as follows
IFi,t =
1 − (1 + gi,t )−1
Li,t
1 − (1 + gi,t )−mi
where i identifies the instrument, IF denotes gross inflows, L end-of-period
nominal levels, g the growth rate of L, and m the average maturity of the
6
instrument. Other than that, the Hackethal and Schmidt (2003) gross flows
approach is similar to the net flows studies conducted by Mayer (1990) and
Corbett and Jenkinson (1996, 1997).
To identify the sources of finance for physical investment in Canada based
on gross flows of funds to private non-financial enterprises, we begin with the
aggregate gross funds data, listed in Table 6 along with their sources. Again
we use non-financial investment (5) as physical investment and calculate internal funds as the difference between gross saving (1) and capital transfers
(4). The national balance sheet categories used to calculate gross flows include chartered bank loans (6), other loans (7), mortgages (8), equity (9),
bonds (10), trade credit (11), and other short-term paper (12), with the latter two being classified as short-term loans in our earlier analysis based on
net flows. As shown in the notes to Table 7, (net) total short term external funds are calculated using annual level changes in Table 6 items 11 and
12 and total short-term external funds (double netting) are calculated using
Table 2 items as follows: (30 + 33 -12 - 13 - 14 - 15 - 16 - 18 -19).
In calculating the contribution of chartered banks to external financing
we used gross flows, based on equation (1), of Table 6 items 6 (chartered bank
loans) and 8 (mortgages). In obtaining gross flows from mortgages, we calculated the chartered banks level of non-residential mortgage financing using
CANSIM II series V122656, V122657, V122658, V122659, and V800015 and
assumed an average maturity of 10.3 years, consistent with the suggestions
in Hackethal and Schmidt (2003). However, our estimates of financing patterns based on gross flows critically depend on the assumptions that we make
about the average maturity of chartered bank loans. Unfortunately, we have
been unable to obtain official information from either Statistics Canada, the
Bank of Canada, the Office of the Superintendent of Financial Institutions
(OSFI), or the Canadian Bankers Association that would allow us to calculate the average maturity of chartered bank loans, because the form that the
banks report on does not request a maturity breakdown of their loans.
To deal with this problem we looked at the 2003 annual reports by chartered banks to find information on the maturity profile for loans to business and government.1 We found such information for two banks – the
Canadian Imperial Bank of Commerce (see Note 4 on page 75 of CIBC’s
1
A limitation of this approach is that we use business and government loans by chartered
banks (which include non residential loans, loans made to government, and loans made
outside Canada) as a proxy for chartered bank loans to private non-financial corporations.
7
2003 Annual Report, located at http://www.cibc.com/ca/about.html) and
the Royal Bank of Canada (see Note 6 on page 75 of Royal’s 2003 Annual
Report, located at http://www.rbc.com/investorrelations). This information
is summarized as follows (in millions of dollars)
Maturity
CIBC
RBC
Under 1 year
1 to 5 years
Over 5 years
Total
21,713
9,600
1,864
33,177
40,369
10,674
3,866
54,909
Based on this information, we assume an average maturity of 0.75 for the
loans in the under 1 year category, 3 years for the loans in the 1-5 years
category, and 10 years for the loans in the over 5 years category, and therefore
a weighted average maturity of chartered bank loans of 2.
As already noted, this issue of classification of bank loans is most critical
to our results and to those reported by Hackethal and Schmidt (2003) for Germany, Japan, and the United States. For example, Hackethal and Schmidt
(2003) classified loans by commercial banks in the United States as having
an average maturity of less than a year, and because of this assumption they
report a bank contribution to external financing for the United States of only
18%. If we make a similar assumption for Canada, the chartered banks contribution to external financing plummets to only 3%, which we think is not
realistic. However, if we vary the average maturity of chartered bank loans
between 1.1 years and 2 years then the contribution of chartered bank loans
to external financing ranges between 68% and 56%.
With these in mind, in the first column of Table 7 we present the average
portion of internal and external long-term financing over physical investment
in Canada; the last three columns of the table, taken from Hackethal and
Schmidt (2003), present the same results for Germany, Japan, and the United
States averaged over the years 1970 to 2000. Internal funds are broken down
into depreciation and capital transfers (which constitutes the bulk of the
total) and retained earnings. Averaged over the years 1970-2002, the volume
of total internal funds in Canada is 94% of physical investment, higher than in
the other countries but closest to that in the United States (87%). However,
the average portion of long-term external funds in Canada is closer to that
in Japan than in Germany and the United States. In particular, Canadian
firms obtained 165 cents from external long-term sources for every dollar
8
they generated internally whereas Japanese, German, and American firms
obtained, 66 cents, 188 cents, and 74 cents, respectively.
The last three rows of Table 7 are meant to encapsulate the role of shortterm financial sources, specifically gross flows from short-term debt, net flows
from short-term debt, and net flows from short term debt less net flows
from short-term financial investment (double netting) as a portion of physical
investment. In our treatment of short-term instruments we follow Hackethal
and Schmidt (2003), who in turn refer to Baker and Wurgler (2000) as their
guide, and assume that short term instruments have an average maturity of
exactly one year, meaning that their gross amounts exactly equal the yearend levels. Of course, as the term to maturity of most short-term instruments
is less than a year, such estimates of short-term gross flows are lower bound
values. However, even these conservative estimates indicate that the inclusion
of short-term gross flows would swamp the empirical results on aggregate
financing patterns, as can be seen in the lower part of Table 7.
In this regard, Hackethal and Schmidt (2003, p. 17) argue that “most
short-term instruments like commercial paper, short-term bank loans and
trade credits mainly serve working capital purposes like payroll needs, inventory management and liquidity management for smoothing out seasonal
imbalances and much less the purpose of financing long-term investment.
Hence it seems justified to only look at the marginal contribution of the liability side of the liquidity management to financing. This is equivalent to
looking at annual net flows from short-term liabilities. In order to account
for the fact that liquidity management does not only involve short-term liabilities but also short-term financial claims like cash, bank deposits and trade
receivables, one should apply double netting to short-term liabilities and assets and use the resulting net flows as indicators for the role of short-term
instruments.” The last row of Table 7 indicates that the contribution of total
double-netted flows from liquidity management activities is -13% for Canada,
much lower than for the other countries.
In Table 8 we present (over successive five-year periods and over the period as a whole) instrumental breakdown as percentages of total external
long-term funding for Canada on the basis of gross flows, in the same fashion
as in Table 4 on the basis of net flows. The figures add up to 100 (short
of rounding) as they are percentages. Over the period as a whole, the most
important source of long-term external financing are loans from chartered
banks (56% of total external funding), followed by loans from other financial institutions (18%), bonds (15%), and equity (12%). A striking result in
9
the gross flows estimates of Table 8, consistent with the net flows estimates
of Table 4, is the steady increase in the use of market sources of finance
(stocks and bonds) and the steady decline in the use of intermediary finance
(chartered banks and other financial institutions) – see also Figure 2. Moreover, internally generated funds as a portion of physical investment are rising
across the period, as can be seen in the last row of Table 8.
Finally, we consider how financing patterns on the basis of gross flows in
Canada compare to those in Germany, Japan, and the United States – the
three countries used in the Hackethal and Schmidt (2003) study. The first
striking result in the gross flows estimates of Table 9 is that Canada has the
second highest share of bond finance (15%) and the highest share of equity
finance (12%) and therefore an overall share of market financing of 27%,
second only to the United States (43%). Intermediary finance in Canada
(chartered bank loans and loans from other financial institutions) accounts
for 75% of the external sources of funds, well below the 86% figure for each
of Germany and Japan but above the 56% figure for the United States.
In summary, the measurement of gross flows brings out significant differences between financing patterns in Canada and those in the world’s three
largest economies – Germany, Japan, and the United States. As Hackethal
and Schmidt (2003, p. 19) put it, “contrary to the results of studies based
on net flows, the presented evidence from gross flows is completely in line
with generally held beliefs that banks are the most important external source
of financing in Germany and Japan, whereas capital markets and non-bank
financial intermediaries are of greater importance in the US.” The empirical
results based on gross flows reveal that financing patterns in Canada are different than those in Germany, Japan, and the United States and it is not as
easy to classify Canada as being either bank-based or capital market-based.
However, as Figure 2 indicates, there is a trend towards smaller proportions
of intermediary finance and larger proportions of market finance.
4
Conclusion
There are two sources of information for studying aggregate corporate financing patterns. One is flow-of-funds data, providing a comprehensive coverage
of financial flows between different sectors of the economy, and the other is
company accounts data, constructed on an individual firm basis and aggregated to industry or economy levels. In this paper, following recent influential
10
empirical work by Corbett and Jenkinson (1996, 1997) and Hackethal and
Schmidt (2003), we have used flow-of-funds data from the national income
accounts to examine the financing patterns of enterprises in Canada.
On the basis of net flows, our results for Canada indicate that intermediary finance is small, market finance is relatively large and increasing, and
that the dominant mode of finance is internal funds, consistent with the
findings by Corbett and Jenkinson (1997) for Germany, Japan, the United
Kingdom, and the United States. However, as Hackethal and Schmidt (2003)
argue, gross flows are more appropriate than net flows in measuring the role
of various forms of external financing, because the use of net flows leads to
a systematic bias in the results in favor of internal sources of funds. On
the basis of gross flows, we find systematic differences in financing patterns
between Canada and the countries used by Hackethal and Schmidt (2003)
– Germany, Japan, and the United States – consistent with the commonly
held belief prior to Mayer’s (1988, 1990) influential contributions.
Our results on financing patterns and financial structure seem to be relevant in the recent debate in Canada of whether a floating currency is the
right exchange rate regime or whether we should consider alternative monetary arrangements, such as for example a fixed exchange rate (as we did
from 1962 to 1970) or a currency union with the United States and perhaps Mexico. For example, structural differences between Canada and the
United States will be important in the conduct of a single monetary policy
in a common currency framework – see Schmidt (2001) for an interesting
discussion.
In this paper we haven’t been concerned with the relationship between
financial structure and long-run economic growth. A host of studies carried
over the recent past have investigated this issue – see, for example, Levine
(1997), Levine and Zevros (1998), and Rajan and Zingales (1998). However,
as Dolar and Meh (2002, p. 22) argue “there is a rich diversity of opinion
in the existing literature on the relationship between financial structure and
growth. Advocates of the intermediary- and market-based views argue that
financial intermediaries and markets are substitutes in promoting growth.
Proponents of the financial services and law and finance views stress that
intermediaries and markets are, in fact, complemenst in fostering economic
performance.” This is clearly an area for potentially productive future research.
11
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12
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13
TABLE 1
The Flow of Funds
Gross sources
1.
2.
3.
4.
5.
6.
Gross uses
Internal
Bank loans
New equity issues
Bond issues
Trade credit received
Total sources
7.
8.
9.
10.
11.
12.
Net sources
Cash and deposits
Equity purchases
Bond purchases
Trade credit given
New capital formation
Total uses
Net uses
Internal (1)
Net bank (2 - 7)
Net equity (3 - 8)
Net bonds (4 - 9)
Net trade credit (5 - 10)
Net sources (6 - 7 - 8 - 9 - 10)
Physical investment (11)
Source: Corbett and Jenkinson (1996, Table AI)
1
TABLE 2
Sources of Canadian Aggregate Flow of Funds Data:
Non-Financial Private Corporations
Variable
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
CANSIM II series
Gross saving
Saving
CCA
Capital transfers
Non-financial investment
Fixed capital
Inventories
Existing assets
Net lending (IEA)
Net lending (FFA)
Transactions, financial assets
Currency and bank deposits
Deposits in other institutions
Foreign currency deposits
Consumer credit
Trade accounts receivable
Other loans
Canada short term paper
Other short term paper
Mortgages
Canada bonds
Provincial bonds
Municipal bonds
Other Canadian bonds
Corporate claims
Shares
Foreign investments
Other financial assets
Transactions, liabilities
Trade accounts payable
Bank loans
Other loans
Other short-term paper
Mortgages
Other Canadian bonds
Corporate claims
Shares
Other liabilities
Statistical discrepancy
V31778
V31780
V31779
V31781
V31782
V31783
V31784
V31785
V31786
V31787
V31788
V31793
V31794
V31795
V31796
V31797
V31798
V31799
V31800
V31801
V31802
V31803
V31804
V31805
V31789
V31790
V31791
V31792
V31806
V31810
V31811
V31812
V31813
V31814
V31815
V31807
V31808
V31809
V31816
Notes: CCA stands for Capital Cost Allowance (our version of depreciation).
IEA stands for Integrated Economic Accounts and equals Gross saving (1) less
Non-financial investment (5). FFA stands for Financial Flow Accounts and
equals Transaction assets (11) less Transaction liabilities (29).
2
TABLE 3
The Canadian Flow of Funds
Gross sources
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
Gross uses
Internal (1 - 4)
of which Depreciation (3)
Retained profits (40 - 41)
Capital transfers (4)
Loans (31 + 32 + 34)
Trade credit received (30)
Bond issues (35)
Corporate claims (36)
New equity issues (37)
Other (33 + 38)
50.
51.
52.
53.
54.
55.
56.
Depreciation (3)
Loans (12 + 13 + 14 + 17 + 20)
Trade credit given (15 + 16)
Bond purchases (21 + 22 + 23 + 24 + 27)
Corporate claims (25)
Equity purchases (26)
Other (18 + 19 + 28)
Net sources
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
Net uses
Internal (40)
of which Depreciation (41)
Retained profits (42)
Capital transfers (43)
Loans (44 - 51)
Trade credit (45 - 52)
Bonds (46 - 53)
Corporate claims (47 - 54)
New equity (48 - 55)
Other (49 - 56)
Total (SUM (58:66))
Statistical discrepancy (69 - 67)
69.
Physical invetsment (5)
Note: Numbers in parentheses refer to entries in Tables 2 and 3.
3
TABLE 4
Net Sources of Finance in Canada (Percentages)
Internal funds
Intermediary finance
Bonds
Equity
Corporate claims
Trade credit
Capital transfers
Other
Statistical adjustment
70-74
75-79
80-84
85-89
90-94
95-99
00-02
Average
87.0
12.9
12.4
8.6
-2.8
-3.9
3.0
-5.3
-12.0
96.2
12.2
9.6
17.8
-7.3
-2.3
3.3
-13.2
-16.3
86.5
28.0
10.6
20.6
-17.1
-4.0
8.9
-15.3
-18.3
89.1
18.4
6.5
19.9
-9.5
-1.3
6.7
-19.5
-10.3
90.8
14.3
8.0
21.9
-5.1
1.5
3.9
-34.5
-0.8
96.9
-3.4
12.0
24.8
-13.9
-2.4
2.4
-11.4
-5.1
112.6
-6.5
15.7
37.4
-28.7
1.6
2.3
-24.4
-1.0
94.9
9.2
10.7
22.6
-12.7
-1.4
4.2
-18.0
-9.5
Figure 1. The Financing of Physical Investment in Canada:
Net Flows, 1970-2002.
1.4
Physical investment (100xbillions)
Intermediary finance
100%
Internal finance
2002
2000
1998
1996
-40%
1994
0
1992
-20%
1990
0.2
1988
0%
1986
0.4
1984
20%
1982
0.6
1980
40%
1978
0.8
1976
60%
1974
1
1972
80%
1970
1.2
TABLE 5
Net Sources of Finance (Percentages) in
Canada, Germany, Japan, UK, and US
Internal funds
Intermediary finance
Bonds
Equity
Corporate claims
Trade credit
Capital transfers
Other
Statistical adjustment
Canada
Germany
Japan
UK
US
94.9
9.2
10.7
22.6
-12.7
-1.4
4.2
-18.0
-9.5
78.9
11.9
-1.0
0.1
–
-1.2
8.7
1.4
1.2
69.9
26.7
4.0
3.5
–
-5.0
–
1.0
0.0
93.3
14.6
4.2
-4.6
–
-0.9
1.7
0.0
-8.4
96.1
11.1
15.4
-7.6
–
-2.4
–
-4.4
-8.3
Notes: The numbers for Canada are averages over the 1970-2002 period and for
the other countries over 1970-1994 – see Corbett and Jenkinson (1997, Table 1).
1
TABLE 6
Sources of Canadian Aggregate Gross Funds Data:
Non-Financial Private Corporations
Variable
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Source
Gross saving
Saving
CCA
Capital transfers
Non-financial investment
CANSIM
CANSIM
CANSIM
CANSIM
CANSIM
II
II
II
II
II
series
series
series
series
series
V31778
V31780
V31779
V31781
V31782
Chartered bank loans
Other loans
Mortgages
Equity
Bonds
CANSIM II series V34257
CANSIM II series V34258
CANSIM II series V34260
Bank of Canada
Bank of Canada
Short-term instruments:
11.
12.
Trade credit
Other short-term paper
CANSIM II series V34256
CANSIM II series V34259
Notes: CCA stands for Capital Cost Allowance (our version of depreciation).
1
TABLE 7
Gross Flows From Internal and external Sources as a Percentage
of Physical Investment in Canada, Germany, Japan, and US
13.
14.
15.
16.
Retained earnings (2)
Depreciation and capital transfers (1 - 2)
Total internal funds (13 + 14)
Total long-term external funds (gross)∗
Canada
Germany
Japan
US
19
74
94
155
3
80
83
55
20
57
77
144
13
74
87
64
220
17
-13
168
11
-5
768
49
-7
240
18
-1
Memo:
Total short-term external funds (gross)∗∗
Total short-term external funds (net)∗∗∗
Total short-term external funds (double netting)∗∗∗∗
17.
18.
19.
Notes:
Numbers in parentheses and notes apply only to Canada and refer to entries in Tables 6 and 7, unless
otherwise indicated.
The numbers for Canada are averages over the 1970-2002 period and for the other countries
over the 1970-2000 period – see Hackethal and Schmidt (2003, Table 4).
∗
Includes gross estimates, based on equation (1), of Table 6 items 6, 7, 9, and 10.
∗∗
Assuming an average maturity of 1 year, gross estimates based on equation (1), equal
year-end levels of Table 6 items 11 and 12.
∗∗∗
Equals (11 + 12)t − (11 + 12)t−1 .
∗∗∗∗
Total short term external funds (double netting) are calculated using flow of fund liabilities
less assets from Table 2, as follows: (30 + 33 -12 - 13 - 14 - 15 - 16 - 18 -19).
1
TABLE 8
Compositon of External Financing in Canada on the Basis of Gross Flows (Percentages)
Long-term chartered bank loans∗
Long-term loans from other institutions∗∗
Bonds∗∗∗
Equity∗∗∗
70-74
75-79
80-84
85-89
90-94
95-99
00-02
Average
58
24
16
3
58
22
13
8
69
14
7
11
57
19
11
13
55
20
13
13
45
15
21
19
40
15
26
18
56
18
15
12
88
95
88
91
96
95
108
94
Memo:
Internal funds as a portion of investment
∗
Gross flows were estimated using equation (1) and Table 6 item 6 and a portion of item 8.
Gross flows were estimated using equation (1) and Table 6 item 7 and a portion of item 8.
∗∗∗
Actual gross figures supplied by the Bank of Canada were used.
∗∗
Figure 2. The Financing of Physical Investment in Canada:
Gross Flows, 1970-2002
100%
90%
80%
70%
60%
Direct finance (equity and bonds)
50%
Intermediary finance
40%
30%
20%
10%
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
0%
TABLE 9
Composition of External Financing in Canada
Germany, Japan, and US (Percentages)
Canada
Germany
Japan
US
56
18
15
12
76
10
7
8
78
8
9
5
18
38
32
11
Long-term bank loans
Long-term loans from other institutions
Bonds
Equity
Notes: The numbers for Canada are averages over the 1970-2002 period and for the other
countries over the 1970-2000 period – see Hackethal and Schmidt (2003).
1