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Corporate Finance in Germany and France. A Joint Research Project of the Deutsche Bundesbank and the Banque de France

204 Pages Posted: 26 Nov 1999  

Hans Friderichs

Deutsche Bundesbank

Dieter Gerdesmeier

European Central Bank (ECB)

Elisabeth Kremp

Banque de France; National Bureau of Economic Research (NBER)

Bernard Paranque

KEDGE Business School

Annie Sauve

Banque de France

Manfred Scheuer

Deutsche Bundesbank

Elmar Stoess

Deutsche Bundesbank

Date Written: September 1999

Abstract

The present study is the outcome of a joint research project by staff members of the Banque de France and the Deutsche Bundesbank. The study is based on preliminary work by the European Committee of Central Balance Sheet Data Offices, which was set up in 1985 to improve the analysis of corporate accounts data through the exchange of information, the comparison of analytical methods, and the carrying-out of joint studies. As part of the work of the European Committee of Central Balance Sheet Offices, Germany, Austria, Spain, France, Italy and the DG II set up a working group in 1994 with the task of comparing the financial situation of European enterprises. In 1997 the working group presented an initial study entitled Net Equity and Corporate Financing in Europe, (Delbreil et al., 1997, available on SSRN) which was especially devoted to intermediate economies in which the capital markets play a much smaller role than in Anglo-Saxon countries.

The empirical basis of the present study was provided by individual data from the raw material of the national corporate balance sheet statistics. Considerable efforts were made to ensure the comparability of the data and, in particular, to neutralize the differences in accounting practice as far as possible. The time period under review in the study is concentrated on the period 1987 to 1995 and 1996, respectively (only the Banque de France provides figures for 1996), in order to completely cover the last business cycle, which occurred relatively synchronously in both countries.

Corporate finance is analysed from the point of view of organizational theory and the theory of conventions, an approach which is not very well known in Germany but quite popular in France, and which puts special emphasis on the institutional determinants of corporate finance. The differences in the systems of corporate finance in France and Germany can be traced to a large extent to the institutional context in the two countries. This defines particular rules and conditions under which enterprises decide on their strategy to solve the capital structure puzzle and which tend to differ greatly and systematically in the two countries. A very prominent factor is to be seen, for example, in the relationship between banks and companies.

The results of the descriptive approach clearly show that the capital structures of firms largely diverge, as the different sources of corporate finance tend to play very distinct roles in the industrial sectors of the two countries, thus indicating that the respective systems of corporate finance seem to differ distinctly and systematically.

Underlying the full samples, panel econometric analysis shows that French and German firms exhibit in some way a surprisingly parallel behaviour. In the baseline model assuming exogeneity of the right-hand-side variables long-term growth and collateral are positively correlated to debt supporting the theory of signalling. The negative relationship of profit and leverage stands for the pecking order approach and finally the impact of the cost of finance on enterprisess credit demand is negative, too. Nevertheless clear differences in borrowing behaviour can be found with respect to the determinants size and time. Time proxying macroeconomic factors are very important for France, but not for Germany. On the other hand the variable size plays a major role for total creditors in Germany only, where small firms depend much more on external funds than large enterprises. Such a divergent lending outcome between French and German firms may be based on the country-specific institutional settings. However, dependency of some results on the econometric specification and the variables definition underlines the difficulty to present final answers. Additionally, it can be shown that the borrowing behaviour of firms of different size classes is not equivalent. This result, which holds for both France and Germany, strengthens the fact that a representative firm and a unique debt equation does not exist.

Keywords: finance, europe, capital structure

JEL Classification: D2, E5, G3, M2

Suggested Citation

Friderichs, Hans and Gerdesmeier, Dieter and Kremp, Elisabeth and Paranque, Bernard and Sauve, Annie and Scheuer, Manfred and Stoess, Elmar, Corporate Finance in Germany and France. A Joint Research Project of the Deutsche Bundesbank and the Banque de France (September 1999). Available at SSRN: https://ssrn.com/abstract=190245 or http://dx.doi.org/10.2139/ssrn.190245

Hans Friderichs

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Hauptabteilung Statistik - Division S32-6
D-60431 Frankfurt/Main
Germany
+49 69 9566 8586 (Phone)
+49 69 9566 8610 (Fax)

HOME PAGE: http://www.bundesbank.de

Dieter Gerdesmeier

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Elisabeth M. Kremp

Banque de France ( email )

43-2510 DESS
39 rue croix des petits champs
75049 Paris Cedex 01, 75049
France
33 (0)1 42 92 52 02 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Bernard Paranque (Contact Author)

KEDGE Business School ( email )

Domaine de Luminy - BP 921
BP 921
Marseille, PACA 13288
France
+33607434981 (Phone)

HOME PAGE: http://www.kedgebs.com

Annie Sauve

Banque de France ( email )

31 rue Croix des Petits Champs
Paris, 75049
France
33 1 42 92 39 67 (Phone)

Manfred Scheuer

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Elmar Stoess

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
P.O.B. 10 06 02
D-60431 Frankfurt/Main
Germany

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