Connections between Corporate Governance, Corporate Savings and Business Cycles in The Economic Literature around the Great Depression

Corporate savings, which could play a major role in producing financial crises, receive scant analytic attention today. By contrast, they saw a glorious period of analysis from the late 1920s to the early 1950s, around the Great Depression. During the twenties the corporations were accused of contributing to the stock exchange boom by lending out part of their cash balances. In the thirties they were accused of contributing to the stagnation of the economic system by holding excess cash balances. Two different approaches distinguished the study of retained earnings in the forties and fifties. One approached this phenomenon in connection with investigation into cyclical fluctuations in the economy, while the other analysed the relationship between the rights and interests of the stockholders and those of the management in individual enterprises. The paper deals with some of these seminal contributions, including those by Sergei P. Dobrovolsky and Friedrich A. Lutz.