Abstract
Comparing the financial characteristics of different groups of firms with financial ratios has been a popular methodology in finance. In this paper, we compare the financial characteristics of German and French manufacturing firms with the MANOVA (multivariate analysis of variance) statistical technique. Germany and France are members of the European Union and they have fully integrated economies with a common currency and yet, we find that financial characteristics of German and French manufacturing firms are significantly different. German manufacturing firms have significantly higher liquidity, asset turnover, and equity ratios compared with French manufacturing firms. Despite a high level of economic integration, German and French manufacturing firms appear to preserve their deep-rooted country business traditions. German manufacturing firms lower their technical insolvency risk by maintaining a significantly higher level of liquidity compared with French manufacturing firms. German manufacturing firms also reduce their bankruptcy risk by using more equity financing and less debt financing compared with their French counterparts. The profitability and sales growth ratios of manufacturing firms in the two countries are not significantly different. Although asset turnover ratios are higher in German manufacturing firms than in French manufacturing firms, French firms are able to boost their return on equity to the level in German manufacturing firms by using more debt financing and financial leverage.
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