Economics Department

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

AUTHOR(S):
Christopher F. Baum, Boston College
Dorothea Schaefer, DIW Berlin
Oleksandr Talavera, DIW Berlin

DOCUMENT TYPE: Article

ABSTRACT:
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.