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Unformatted text preview: k (January 28, 2002). Capital Structure of Non-U.S. Firms
In general, non-U.S. companies have much higher degrees of indebtedness than
their U.S. counterparts. Most of the reasons for this are related to the fact that
U.S. capital markets are much more developed than those elsewhere and have
played a greater role in corporate financing than has been the case in other
countries. In most European countries and especially in Japan and other Pacific
Rim nations, large commercial banks are more actively involved in the financing
of corporate activity than has been true in the United States. Furthermore, in
many of these countries, banks are allowed to make large equity investments in
nonfinancial corporations—a practice that is prohibited for U.S. banks. Finally,
share ownership tends to be more tightly controlled among founding-family,
institutional, and even public investors in Europe and Asia than it is for most
large U.S. corporations. Tight ownership enables owners to understand the
firm’s financial condition better, resulting in their willingness to tolerate a higher
degree of indebtedness.
On the other hand, similar...
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