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Why do corporate cash holdings differ within reunified Germany?

Alexander Kupfer (), Julia Oberndorfer and Felix Kunz
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Alexander Kupfer: University of Innsbruck
Julia Oberndorfer: University of Innsbruck
Felix Kunz: University of Innsbruck

Journal of Business Economics, 2022, vol. 92, issue 2, No 3, 197-232

Abstract: Abstract This study examines German firms’ managerial decision-making from the perspective of corporate cash holdings. An econometric analysis of 89,018 firm-year observations for 2004–2016 shows that East German firms hold significantly more cash than their West German counterparts. It is further demonstrated that no reasonable hypotheses (i.e. structural differences, access to financing, and historical differences) can explain East German firms’ higher cash holdings. Instead, the difference in cash holdings is only relevant for small- and medium-sized enterprises (SMEs). Additionally, East German SMEs adjust excess cash more slowly than West German SMEs. These findings are consistent with the hypothesis that cultural attributes influence managerial decision-making and imply that the norms and values of the former German Democratic Republic persist.

Keywords: Managerial decision-making; Corporate cash holdings; Speed of adjustment; SME; Cultural attributes; Germany (search for similar items in EconPapers)
JEL-codes: G30 G32 M14 Z1 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11573-021-01055-8

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