Depositing Corporate Payout

The past two decades have witnessed a sharp surge in corporate equity payout. The annual net equity payout of non-financial public companies in the U.S. averaged $525 billion (in 2010 dollars) per year from 2004 to 2019, compared to only $141 billion during the prior 17-year period. Using aggregate as well as county-level data, this paper shows that a significant amount of the net corporate payout flows into the banking sector in the form of deposits. The estimates suggest that the higher payouts since 2004 have contributed trillions of dollars of deposits to the banking sector. Estimation using bank level data shows that the inflow of deposits leads to a significant increase in bank loans, while having no significant effect on bank holdings of securities. The findings highlight the importance of considering the linkage of financial sectors and the flow of capital in the financial system, and suggest that policies aimed at restricting payouts may distort capital allocation by limiting capital flows from large and profitable corporations to small bank-dependent firms and households