A comparison of the financial characteristics of U.S. and German manufacturing firms

ABSTRACTThe U.S. and Germany rank #1 and #3, respectively, in the world, in terms of the total amount of international trade. U.S. and German firms compete with one another for a larger market share in other countries and in each other's local markets. And yet, there are no published studies that compare the financial management practices of U.S. and German firms. In this paper, we make a contribution to the finance literature on this subject by comparing the financial characteristics of U.S. and German manufacturing firms. Our findings provide valuable insights for corporate financial managers and for investors who invest in these countries. Using a sample of 1166 firms, we find that the financial characteristics of U.S. manufacturing firms differ significantly from those of German manufacturing firms. MANOVA test results indicate that U.S. firms exhibit higher liquidity, lower debt, higher profitability, and lower total assets turnover. These findings are also supported by the logistic regression results. We suggest that better financial performance of U.S. firms could be attributed to more business-friendly employment laws and lower levels of unionization in the United States.JEL: G30, G31KEYWORDS: Financial Ratios, Manufacturing, United States, Germany, MANOVAINTRODUCTIONThe U.S. had the largest ($3,733 billion) and Germany had the third largest ($2,880 billion) volume of international trade in the world in 2011 (CIA, 2013). There is a stiff competition between U.S. and German firms to capture a larger market share in each other's markets and in other countries. Therefore, comparing the financial characteristics of U.S. and German firms can provide valuable insights for financial managers and for the investors who invest in these countries. However, this subject has not been sufficiently studied. The objective of this study is to compare the financial characteristics of U.S. and German manufacturing firms, and investigate how any differences relate to the economic, legal, and labor environments in the two countries. Using a sample of 1166 firms for 2012, we find that the financial characteristics of U.S. and German manufacturing firms differ significantly along a number of dimensions. We find that U.S. firms exhibit higher liquidity, lower debt, higher profitability, and lower total assets turnover. Our findings are supported by several statistical studies, including univariate and multivariate ANOVA, two-sample t-tests, and logistic regression results. We propose that the generally better financial performance of U.S. firms could be attributed to more business-friendly employment laws and lower levels of unionization in the United States.Our research contributes to the literature in the following significant ways. It is the first high-level study that compares the financial characteristics and management practices of U.S. and German manufacturing firms. In addition, it provides valuable insights to international investors about investment atmosphere in these countries and to corporate managers for possible mergers, takeovers or other competitive strategies.The paper is organized as follows. In the next section, we present a brief review of the literature and set the stage for our study with a comparison of the U.S. and German economies. Following, we explain our methodology and data, and discuss our empirical results. In the final section, we conclude the paper and note suggestions for future research.LITERATURE REVIEWComparing the financial characteristics of different groups of firms has long been a popular methodology in finance. Altman (1968), Beaver (1968), Deakin (1972), Moyer (1977), Edmister (1972), and Dambolena and Khoury (1980) predict bankruptcy by comparing the financial characteristics of bankrupt and nonbankrupt firms. Stevens (1973), Belkaoui (1978), Rege (1984), andMeric at al. (1991) identify the financial characteristics of firms that have been corporate takeover targets by comparing them with firms that have not been targets in corporate takeovers. …