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Business investment is ultra-concentrated in Australia

Business investment is highly concentrated in the largest companies in the Australian economy, reported the Reserve Bank of Australia.

The top 20% of companies by production account for about 80% of all investment, while the top 1% of companies account for about half of all non-mining business investment.

At the same time, about 93% of all companies in number are small companies (with an annual production of less than A $ 2 million), and another 6% are medium-sized (with an annual production of more than A $ 2 million). but less than 50 million).

Together, small and medium-sized enterprises (SMEs) have coverage of more than 99% of all non-mining private companies, but about 60% of non-mining investments.

Likewise, large companies (production of 50 million to 5 billion dollars) comprise only 0.3% of all companies, but have a share of more than one third of all investment.

Business investment

Very large companies (more than $ 5 billion in annual production), of which there were only about 30 in 2017 (or 0.005% of companies), accounted for just under 10% of all investment activity.

For the Reserve Bank of Australia, the concentration of investment among the largest companies in the economy means that they play an important role in determining the patterns of non-mining aggregate investment over time, both in terms of growth and volatility.

The investment of the top 1% of companies accounts for about half of all investment and also tends to be more volatile (overall) compared to the investment behavior of smaller companies.

During a sample period, the annual investment growth of the richest 1% of the companies was approximately twice as variable as that of other companies.

As a result, the investment of the top 1% of companies explains more than 80% of the variation in aggregate investment.

According to the central bank, a large part of the difference in variability is likely due to the number of companies that are aggregated into these two groups.

Investing at the company level tends to be “spotty” or “intermittent” as companies focus their investment on a particular period rather than making smooth adjustments to their equity over time.

 

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