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Why Are Overall Profits Outpacing Financing Costs?

Author

Listed:
  • Anton E. Bobrov
  • Carter Davis
  • Alexandre Sollaci
  • James Traina

Abstract

Since the 1980s, decreasing interest rates have reduced the cost of financing for publicly traded corporations, which in turn has lowered their cost of capital by more than a third. Data show that their profits have likewise declined. At the same time, however, economy-wide corporate profits have increased substantially. Combining these data indicates that the increase in profits has instead gone to privately held companies. This implies that private companies have either increased their market power or their risk.

Suggested Citation

  • Anton E. Bobrov & Carter Davis & Alexandre Sollaci & James Traina, 2024. "Why Are Overall Profits Outpacing Financing Costs?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2024(15), June.
    • Handle: RePEc:fip:fedfel:98399
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    References listed on IDEAS

    as
    1. Loukas Karabarbounis & Brent Neiman, 2019. "Accounting for Factorless Income," NBER Macroeconomics Annual, University of Chicago Press, vol. 33(1), pages 167-228.
    2. Traina, James, 2018. "Is Aggregate Market Power Increasing? Production Trends Using Financial Statements," Working Papers 272, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    Full references (including those not matched with items on IDEAS)

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