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Abstract

The study of financial accounts is usually devoted either to analyzing the behavior of the individual firm or to the macro-economic aspects such as total capital raised, flow of funds accounting or analysis of problems of investment, etc. However, this note relates the structure of company accounts of the four countries surveyed, to the particular financial and socio-economic framework within which they operate.

The results of the study show that the degree of gearing with which firms operate varies from economy to economy. Other aspects of corporate behavior, however, such as the effect of monetary policy on the firm, the use of financial ratios to forecast bankruptcy, and the pattern of profit distribution, seem to follow a common pattern in all the economies, despite the manifold differences between the four countries.

The international differences regarding the use of borrowed funds relative to shareholders' equity can be explained primarily by the overall growth rate of the economy and by public policy as expressed by the existence of non-economically motivated lenders and the degree of government intervention in the capital market. Other factors related to the performance of the firm such as profitability, size or industrial group seem to have little effect. This would suggest that the importance of the cost-of-capital, profitability, and measurements of uncertainty in determining the degree of gearing in the individual firm, may be highly overrated compared with these factors.

On the other hand, as there are no major differences in the forms of ownership prevalent in the economies surveyed nor in their corporate tax structures, the forms of profit distribution follow a common pattern. In all the economies, profits are distributed both as dividends and in non-dividend forms (owners' salaries, interest-free loans, personal expenses paid for by the firm, etc.) depending primarily on the form of ownership of the firm. Furthermore, the economic variables determining non-dividend forms of profit distribution are similar to those shaping dividend policy.

Despite the international differences in the banking system and the role of the central bank, the effect of changes in commercial bank credit on the investment policy of the firm is similar in all the countries surveyed. These changes are primarily related to the inventory of raw material of the individual firm and its investment in fixed assets. The non-bank funds used by the firm are not substantially related to the changes in bank credit received by it.

Financial ratio analysis is shown in this study to be an analytical tool which, with slight modifications, can be used to forecast bankruptcy in all the countries surveyed. This would suggest that factors such as low profitability, over-use of gearing, illiquidity, are meaningful indicators reflecting financial weakness irrespective of the nature of the economic institutions of the particular economy or of its financial system.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce > HF5601 Accounting H Social Sciences > HG Finance
Departments:	Doctoral Theses Doctoral Theses > School of Arts and Social Sciences Doctoral Theses

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