Finance, Investment, and Firm Value in Germany and the Us: A Comparative Analysis

Humboldt University SBF 373 Discussion Paper No. 49/1998

38 Pages Posted: 18 Apr 1999

See all articles by Eric Nowak

Eric Nowak

Swiss Finance Institute; University of Lugano

Date Written: May 1998

Abstract

Germany and the United States are generally seen as the two competing systems of corporate governance. In search for a comparative welfare analysis of the financial systems, we are interested in (i) the aggregate value-added of corporate investments in the two countries and in (ii) the interaction of investment and financing decisions. This paper investigates the impact of financing, investment, and dividend decisions on the value of stock corporations in Germany and the US. The methodology is based on a cross-sectional approach proposed by Fama and French. In general, the evidence shows that relations for the German firms are statistically similar to those found for their US counterparts. In both countries, corporate investment creates value in excess of cost, but the US industrial sector seems to be more efficient in making value-enhancing investments. The results are robust to the choice of the regression model, the investigation period, and the use of consolidated or unconsolidated financial statement data.

JEL Classification: G1, G32

Suggested Citation

Nowak, Eric, Finance, Investment, and Firm Value in Germany and the Us: A Comparative Analysis (May 1998). Humboldt University SBF 373 Discussion Paper No. 49/1998, Available at SSRN: https://ssrn.com/abstract=156208 or http://dx.doi.org/10.2139/ssrn.156208

Eric Nowak (Contact Author)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

University of Lugano ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland
+41-91-9124-637 (secr. -712) (Phone)
+41-91-9124-647 (Fax)

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