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Corporate excess savings, or gross savings in excess of fixed capital formation, can affect the real economy through the financial decisions of individual firms. Based on an unbalanced panel of more than 2,000 Korean listed companies from 2003 to 2021, this study analyses how excess savings are used in individual firms’ financial activities and their consequent impact on aggregate demand at the macroeconomic level. Excess savings are most often used for debt repayment. Considering heterogeneity, the excess savings of large firms are mainly related to M&amp;A, while the excess savings of small firms are relatively more disbursed to cash holdings for the precautionary motive. Since 2010, the extent of its use in M&amp;A has become stronger; M&amp;A in large firms appears to crowd out fixed capital formation for a certain period of time. When this analysis is applied at the industry level, it is also consistent with the results of individual firms.

Corporate excess savings: what does it have to do with M&A activities, cash holdings and debt repayments in Korea?