Industry Shocks, Operating Risk, and Corporate Financial Policies around the World
University of South Carolina - Darla Moore School of Business
University of Maryland - Robert H. Smith School of Business
July 1, 2015
Although developing economies are more volatile, firms in developed countries hold more cash and less short-term debt. We show despite greater aggregate and industry stability, performance and balance sheets of individual firms in developed countries are more volatile. In developing countries, market imperfections insulate incumbent firms from competitive risk. Cross-country differences in firm rivalry and cash flow risk are greater in technology-intensive, external-finance-dependent, and large-firm-dominated industries where market imperfections are greater. Firms in developed countries are more sensitive to shocks and adjustments come mostly from cash balance. We propose that product market competition drives the international differences in financial policies.
Number of Pages in PDF File: 76
Keywords: International Cash Holding, International Capital Structure, Firm Risk, Volatility, Financial Development
JEL Classification: G15, G31, G32
Date posted: April 17, 2013 ; Last revised: July 22, 2015
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