Investment, Internal Funds and Public Banking in Germany
Journal of Banking and Finance, Forthcoming
Ruhr Economic Papers #7
30 Pages Posted: 5 Mar 2007 Last revised: 14 Jun 2009
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: Suggested Citation
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