Abnormal retained earnings around the world

Using a firm-level survey database covering 41 countries, we evaluate firms' abnormal retained earnings. The results of our work show that the trends of cash holdings and retained earnings are independent. While cash holdings around the world have been increasing, the opposite has occurred for retained earnings. We show that cash holdings are influenced by precautionary motives and retained earnings by firms' growth opportunities. Abnormal retained earnings rise with GDP growth and decrease following the 2008 financial crisis, confirming the impact of growth opportunities. Uniquely, US firms show positive abnormal retained earnings after the crisis, possibly explaining recent trends in the US stock market.