Économie et Statistique n° 341-342 - Investment and Financing of Firms
French and German Industrial Gearing: Different Trends Despite Similar Determinants
From 1987 to 1995, there were two significant differences between French and German industrial firms' debt ratios. The ratio fell sharply in France over the period, whereas it remained relatively stable in Germany. Debt ratios differ little by company size in France, whereas significant differences are found between small German companies and the largest German corporations, which have much lower gearing. Yet in addition to these differences, which can be explained by different institutional contexts, an econometric analysis of the microeconomic determinants of French and German corporate gearing patterns finds that these determinants are highly similar in the short run in both countries. For example, fast-growing companies have large external financing needs. This implies a positive correlation between the level of debt and growth. However, the correlation is negative between profit and debt when taking into account that companies prefer self-financing, especially the smallest companies, which find it harder to get external capital. The financing cost also has a negative effect on debt. In both countries, this effect is stronger for the large companies, which are more sensitive to the cost of debt since they have more financing possibilities.