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

  • Christopher F. Baum

    (Boston College)

  • Dorothea Schaefer

    (DIW Berlin)

  • Oleksandr Talavera

    (DIW Berlin)

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 Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2006 with number 61.

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Date of creation: 02 Feb 2007
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Handle: RePEc:mmf:mmfc06:61
Contact details of provider: Web page: http://www.essex.ac.uk/afm/mmf/index.html

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