Erhvervsudvalget 2019-20
ERU Alm.del
Offentligt
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NOTAT
RESPONSE
Tobias Renkin
Økonomi og Pengepolitik
Research
Sagsnr.: 196824
Dokumentnr.: 2040053
Kopi til:
10. august 2020
On request of Erhvervsministeriet, Danmarks Nationalbank has calculated
the impact on the distribution of internal liquidity reserves during 2016 in
a counterfactual thought-experiment, in which firms are assumed to hold
additional cash equivalent to the amount of profits paid out during that
year. These calculations are an addition to the ones described in the
Economic Memo "Liquidity Reserves of Danish Firms: implications during
the COVID-19 epidemic". Except for the profit-augmented hypothetical
cash holdings, the calculations remain the same as in the memo: we cal-
culate the ratio of internal liquidity to fixed capacity costs as defined in
the memo, and multiply this ratio by 12 to get a duration measure in
months.
In Figure 1, we plot the hypothetical duration measure and the original
duration measure used in the note. As expected, internal liquidity re-
serves augmented with paid out profits are higher than those only based
on actual cash reserves, since about 43% of firms pay out profits to their
owners during 2016. The overall median increases from slightly below
one month in the original calculation to slightly below two months.
Side 1 af 3
 ERU, Alm.del - 2019-20 - Endeligt svar på spørgsmål 382: Spm. om påvirkning af de likvide reserver i danske virksomheder, til erhvervsministeren
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Figure 1: Actual and hypothetical distribution of internal liquidity reserves
In Figure 2, we plot the hypothetical distribution of internal liquidity re-
serves augmented with paid-out profits by firm size as requested by the
ministry. Figure 3 presents the plot of internal liquidity reserves by firm
size from the original note for comparison. The medians increase to 2.1
months for very small firms (<10 FTE), 1.7 months for small firms (10--49
FTE), 1.6 months for medium-sized firms (50--249 FTE) and 1.3 months for
larger firms.
Figure 2: Hypothetical internal liquidity reserves
Side 2 af 3
 ERU, Alm.del - 2019-20 - Endeligt svar på spørgsmål 382: Spm. om påvirkning af de likvide reserver i danske virksomheder, til erhvervsministeren
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Figure 3: Actual internal liquidity reserves (Original figure)
This calculation does not reflect an assessment of the optimal level of
profits that should have been paid out in 2016. We do not expect 2016
paid-out profits to be representative for payouts after the onset of the
COVID epidemic in 2020. Data on the level of paid-out profits is not avail-
able in the Danish accounting statistics after 2016.
Some important caveats apply to the hypothetical liquidity reserves cal-
culated here. First, we do not symmetrically reduce liquid reserves by eq-
uity raised during the year---we only take into account pay-outs, not pay-
ins. Second, reduced profit payouts may affect other factors that are im-
portant for firms’ liquidity, but are assumed to be fixed in our calculation.
For example, when subsidiary firms don’t pay out profits, this decreases
the income of their parent companies, which would in turn affect how
much liquidity reserves can be generated in the parent companies if they
themselves don’t pay out any profits. Furthermore, lower profit payouts
may affect the ability of firms to raise liquidity in equity markets, which
may also lower the reserves of some firms. We do not attempt to present
a complete list of caveats, but want to highlight that second-round effects
are not taken into account in this counter-factual scenario.
Side 3 af 3