Corporate Finance in Europe from 1985 to 1996

Abstract

After publishing its first report in September 1997, the Own Funds Working Group, in agreement with the European Committee of Central Balance Sheet Offices, decided to continue its work in order to gain a better understanding of the differences in financing structures between countries. To this end, the Group decided firstly to broaden the review period from 1986 to 1996 (1987 to 1995 for Germany). The compilation of figures and ratios over a longer period is advantageous in a number of ways. It not only enables an assessment of trends in financing structures in each country, but also of any changes in the ranking of the different countries involved. Furthermore, it gives an insight into the influence of cyclical and structural factors on this ranking.

The Group also set itself the objective of not only taking a closer look at the influence of institutional factors, such as the bank-firm relationship, but also of studying the role played by changes in the asset structure (i.e. in financing needs). Much research stresses the possible influence of the nature of assets on the management of needs and consequently on the choice of corporate financing (Dosi and alii ,1990; Williamson, Myers, Salais and Storper, 1993).

This report will record the achievement of the study group measured by the targets the members set themselves.The first part of the report will give the conclusions that can be drawn from the analysis of the financial structures of corporations in the five countries examined during the period 1986-1996.In the second part, an attempt will be made to show the main characteristics of assets and the changes in their structure and to evaluate their impact on the financial structures of corporations. In the third part, the influence of institutional factors on corporate structures assumed in the first two parts will be explained. However, it was not possible to develop explanatory models.

The study was based, as the previous study, on incorporated companies (partnerships and sole proprietorships are therefore excluded) of the manufacturing industry, which is uniformly defined across all the countries. Once again, five size brackets according to turnover expressed in euros are analyzed. The size-based approach is essential because the aggregate values conceal the diversity of the situations in the various countries, especially in Germany where the results are strongly influenced by large firms. The two statistical parameters used are the weighted mean and the median.

Moreover, to gain a better understanding of the influence of financing needs, assets have been broken down into their main items. As previously, efforts have been made to align methodologies so that the analyses cover variables that are as homogenous as possible from country to country. As mentioned earlier, this new study covers the period from 1986 to 1996. It has therefore not been able to take into consideration and analyze, for example, the consequences on corporate financial structures of economic and financial trends seen in most recent years.

JEL Classification: E5, G3, M2