Comparison of corporate investment and employment from the perspective of ownership and reinvestment
The aim of this box is to compare investment and employment by type of ownership of firms (private domestic, foreign) and show the trend in FDI earnings for foreign-controlled firms and the breakdown of those earnings into dividends and reinvested earnings. The behaviour of domestic and foreign corporations is compared using the CZSO’s quarterly financial flow indicators for gross capital formation and employment. The latest available data for 2013 Q2 were used as the reference period for the breakdown of corporations into domestic and foreign.1
Corporate investment is monitored by means of acquisitions of tangible and intangible assets, which, assuming a constant share of asset sales,2 can be used as a rough approximation of gross fixed capital formation. Chart 1 shows that investment in the sample of corporations under review is affected most significantly by investment by foreign corporations in export-oriented manufacturing, whose contributions have been strongly procyclical in recent years. This is reflected in the fact that the cyclicality of gross fixed capital formation in the Czech Republic is traditionally strongly correlated with external demand. The evolution of employment provides a similar picture to investment (see Chart 2). Domestic corporations tend to contribute to changes in both investment and employment to a much lesser extent. The period after the onset of the economic crisis, when the fall in investment and employment was also significant in domestic corporations, was an exception.
Chart 1 (BOX) Acquisition of assets by corporate ownership and gross fixed capital formation
Foreign corporations in manufacturing have had the greatest effect on investment in recent years
(annual percentage changes; contributions in percentage points; current prices)
Chart 2 (BOX) Employment in corporations by ownership and total employment
Employment is usually influenced mainly by foreign-controlled corporations, but also fell in domestic corporations during the crisis
(annual percentage changes; contributions in percentage points)
The greater variability of the indicators under review in foreign-controlled corporations probably reflects greater flexibility in both the labour market and production. In addition, FDI is concentrated in more cyclical industries. These two factors are in turn reflected in FDI earnings and their distribution (see Chart 3). FDI earnings fell in absolute terms at the beginning of the financial crisis. The ratio of reinvested earnings to FDI earnings then dropped as well, in line with the data on falling gross fixed capital formation in foreign-controlled corporations. The fall in reinvested earnings was also partly due to an outflow of retained profits at a time of insufficient liquidity in parent companies at the start of the global financial crisis.
Chart 3 (BOX) FDI earnings and reinvestment
The ratio of reinvested earnings to total FDI earnings has fallen significantly since the beginning of the global financial crisis
(annual percentage changes; share in %)
Note: data for 2012 are preliminary.
1 To achieve comparability over time, the comparison of domestic and foreign corporations was made on a constant sample containing 3,086 private corporations that reported complete and reliable data over the entire period of 2004–2013. In all, 1,190 foreign and 1,896 domestic corporations, employing a total of almost 870,000 persons in the period under review, were represented in this sample.
2 Gross fixed capital formation is estimated in the national accounts as the sum of the value of acquisitions of tangible and intangible assets minus the sum of income on the sale of those assets.