THE EFFECTS OF SHORT-TERM LIABILITIES ON PROFITABILITY

A COMPARISON OF GERMAN AND US FIRMS

Presenters:M. Zubair (21)Shadab Mustafa (11)Haroon adil (24)

Scheme of Presentation:

Part-I : The Article (introduction) (Presenter: Zubair)

Part-II : Hypothesis (Presenter: Shadab)

Part-III : Results (Presenter: Haroon)

Part-IV : Question/ Answer Session (The Group)

Christopher F Baumi. US citizenii. Boston college and DIW Berliniii. Specialty in STATAiv. 80 Articles and 02 books

Dorothea Schaferi. German citizenii. DIW Berliniii. Research director financial marketiv. 51 Articles and 02 books

• Oleksandr Talaverav. German citizenvi. DIW Berlinvii. Specialty in Econometricsviii. 80 Articles

Authors:

PART 1: INTRODUCTION

INTRODUCTIONThe Topic Provides Information about:Capital structure

Debt maturity structure

Short term liabilities and profitability

Liability maturity structure has an impact of firm’s performance.

The Topic Provides Information about:

Firm’s rely more on short term debt are more profitable. Financial Systems : bank-based and market-based.

Data used -- Manufacturing firm’s only.

INTRODUCTION

Hypothesis and their relationship

Hypothesis Presented By:

Relationship

Depend. Variable

In –depend. Variable

Contracting-costHypothesis

Myers (1977) NEGETIVE

ROA STL

Signalling hypothesis

Diamond(1991)

NEGETIVE

ROA STL

Tax hypothesis

Brick and Ravid (1985)

POSITIVE

ROA STL

Data and SampleGerman data:

Taken from BUNDESBANK.(State bank) 125000 manufacturing firms. From 1988 to 2000

US data: Taken from COMPUSTAT. (research firm) 15000 manufacturing firms. From 1984 to 2004.

VARIABLESProfitability (ROA)- Dependent variable.Liquidity (cash/TA)- Independent variable.Sales-to-assets ratio- Independent variable.ST/TL- key variable.Size of the firm- Log(labor)

OUTLIERS:Below 1% and above 99%

SIZE OF FIRMSSmall – Below 25%Large – Above 75% and 99%

Model Information

Model Used: Multivariate Linear Regression DPD, PAM.Data Type: SecondaryData Source:

External(Documentary)/SecondaryTime Horizon: Longitudinal

Model

Reviewers Notes:

An international research

New concept introduced in the field

No information is provided about data source in the article.

Unbiased and convincing

No information about sample period of data.

Question/ Answer Session ( The Group)

?