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
January 1, 2014
Although developing economies are more volatile, firms in developed countries hold more cash and less debt. We show that despite greater aggregate and industry stability, the 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 we expect greater market imperfections. Firms in developed countries are more responsive to shocks. Most of the adjustments come from cash balance. Firms in developing countries select financial policies to accommodate lower real risk, and not just in response to market imperfections.
Number of Pages in PDF File: 72
Keywords: International Cash Holding, International Capital Structure, Firm Risk, Volatility, Financial Development
JEL Classification: G15, G31, G32
Date posted: April 17, 2013 ; Last revised: February 1, 2014
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