Investment, Internal Funds and Public Banking in Germany

30 Pages Posted: 5 Mar 2007 Last revised: 14 Jun 2009

See all articles by Dirk Engel

Dirk Engel

University of Applied Sciences Stralsund; Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Torge Middendorf

Rhine-Westphalia Institute for Economic Research (RWI-Essen)

Date Written: May 1, 2007

Abstract

Previous studies argued that low investment-cash flow sensitivities of German firms may be caused by dominance of public banking. The paper addresses this topic and applies a unique accounting dataset of German firms. Results from a dynamic panel data approach show that the dependence of investment spending on internal funds does not significantly differ between firms attached to savings banks, cooperative banks or commercial banks. Thus, the importance of the public banking sector in Germany may not explain the rather low dependence of firms on internal funds and public ownership of borrowers seems not essential to reduce financing constraints.

Keywords: Investment, Relationship Banking, Panel Data, GMM

JEL Classification: G32, D92, L21, C23

Suggested Citation

Engel, Dirk and Middendorf, Torge, Investment, Internal Funds and Public Banking in Germany (May 1, 2007). Journal of Banking and Finance, Forthcoming, Ruhr Economic Papers #7, Available at SSRN: https://ssrn.com/abstract=968254

Dirk Engel (Contact Author)

University of Applied Sciences Stralsund ( email )

Zur Schwedenschanze 15
Stralsund, DE 18437
Germany

HOME PAGE: http://www.fh-stralsund.de

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
Essen, DE 45128
Germany

Torge Middendorf

Rhine-Westphalia Institute for Economic Research (RWI-Essen) ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

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