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
Date Written: May 1998
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: Suggested Citation