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The Effects of Short-Term Liabilities on Profitability : The Case of Germany

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Author Info
Christopher F. Baum
Dorothea Schäfer
Oleksandr Talavera

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Abstract

Using data from Germany this paper examines the direct effect of non-financial firms' use of short-term versus long-term liabilities. We develop a structural model of a firm's value maximization problem that predicts that profitability of the firm will change if firms alter their use of short-term versus long-term liabilities. We find that firms that rely more heavily on short-term liabilities are likely to be more profitable.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 635.

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Length: 17 p.
Date of creation: 2006
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Handle: RePEc:diw:diwwpp:dp635

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Related research
Keywords: profitability short-term liabilities maturity structure capital structure

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G30 - Financial Economics - - Corporate Finance and Governance - - - General

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