Abstract
This study examines German firms’ managerial decision-making from the perspective of corporate cash holdings. An econometric analysis of 89,018 firm-year observations for 2004–2016 shows that East German firms hold significantly more cash than their West German counterparts. It is further demonstrated that no reasonable hypotheses (i.e. structural differences, access to financing, and historical differences) can explain East German firms’ higher cash holdings. Instead, the difference in cash holdings is only relevant for small- and medium-sized enterprises (SMEs). Additionally, East German SMEs adjust excess cash more slowly than West German SMEs. These findings are consistent with the hypothesis that cultural attributes influence managerial decision-making and imply that the norms and values of the former German Democratic Republic persist.
Highlights
The German reunification in 1990 caused an unexpected and rapid change in the political system of the former socialist German Democratic Republic (GDR).1 While some studies estimated the transition to the West German system to be1 3 Vol.:(0123456789)completed within 5 to 15 years (Beirat des Bundeswirtschaftsministeriums 1991; Dornbusch and Wolf 1994), more recent research, posits that norms and values can persist across generations (Necker and Voskort 2014; Wyrwich 2015)
This study analyses managerial decision-making through the lens of corporate cash holdings, which reflects an important corporate finance decision independent of firm size
We exclude the possibility of structural differences in our sample by matching East German firms with West German firms based on firm characteristics and geographical proximity
Summary
The German reunification in 1990 caused an unexpected and rapid change in the political system of the former socialist German Democratic Republic (GDR). While some studies estimated the transition to the West German system to be. We address the possibility of historical differences by excluding firms founded before 1990 and by controlling for historical entrepreneurial roots None of these specifications explain the significantly higher cash holdings of the East German firms. East and West German firms for different size classes and observe that while there is no significant difference in cash holdings for large firms, it exists for medium-, small-, and micro-sized firms This result is consistent with the hypothesis that the smaller a firm, the fewer the individuals involved in decision-making and the lower the probability that cultural attributes are diversified. The significantly different levels of cash holdings observed between East and West German firms, call for further survey-based research to examine the existence of cultural attribute differences.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
