Industry Shocks, Operating Risk, and Corporate Financial Policies around the World

76 Pages Posted: 17 Apr 2013 Last revised: 22 Jul 2015

Tanakorn Makaew

Securities and Exchange Commission (SEC)

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: July 1, 2015

Abstract

Although developing economies are more volatile, firms in developed countries hold more cash and less short-term debt. We show despite greater aggregate and industry stability, performance and balance sheets of individual firms in developed countries are more volatile. In developing countries, market imperfections insulate incumbent firms from competitive risk. Cross-country differences in firm rivalry and cash flow risk are greater in technology-intensive, external-finance-dependent, and large-firm-dominated industries where market imperfections are greater. Firms in developed countries are more sensitive to shocks and adjustments come mostly from cash balance. We propose that product market competition drives the international differences in financial policies.

Keywords: International Cash Holding, International Capital Structure, Firm Risk, Volatility, Financial Development

JEL Classification: G15, G31, G32

Suggested Citation

Makaew, Tanakorn and Maksimovic, Vojislav, Industry Shocks, Operating Risk, and Corporate Financial Policies around the World (July 1, 2015). Available at SSRN: https://ssrn.com/abstract=2251422 or http://dx.doi.org/10.2139/ssrn.2251422

Tanakorn Makaew (Contact Author)

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/vmax/

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