FIN around the world
Subtitle: the contribution of financing activity to profitability
By: Russell Lundholm, George Serafeim, and Gwen Yu
Contributors: Serafeim, George; Yu, Gwen; Harvard Business School
Series: Working paper / Harvard Business School -- 13-011; Working paper (Harvard Business School) -- 13-011.
Publisher: Harvard Business School
Published: 2012
Place of publication: [Boston]
Language: eng
Number of pages: 50
Description: We study how the availability of domestic credit influences the contribution that financing activities make to a firm's return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm's ROE in countries with higher domestic credit. The higher contribution of financing activities is not driven by firms taking greater leverage in these countries, but by firms realizing a higher spread (i.e., a greater difference in operating performance and borrowing cost) when more domestic credit is available. Also, we find that firms partially substitute trade credit for financial credit, with large firms exhibiting the greatest rate of substitution. For small firms, the rate of substitution improves with the country's available domestic credit, while large firms are insensitive to this friction. The findings suggest that both country and firm-level factors have a significant impact on how financing activities contribute to corporate performance.
Notes: "July 2012" -- Publisher's website.

Includes bibliographical references.