This lesson provides a comparative analysis of corporate financing practices in the United States and Europe. It explores the influence of the Anglo-Saxon vs. Continental European financial systems on corporate capital structure decisions.

• Anglo-Saxon Model (USA, UK): In countries with an Anglo-Saxon financial system, where there is a strong system of financial intermediaries such as insurance companies, private pension funds, and mutual funds, corporations prefer to attract financial resources through the issuance of securities on international financial markets. The US and UK exemplify this market-oriented approach to financing.

• Continental European Model (Germany, France): In countries where industrial corporations have close relationships with large banking structures, the focus is on bank borrowing. Germany and France represent this bank-oriented financial system. The close cooperation between corporations and banks optimises financial flows, but a high ratio of debt obligations to assets requires careful risk management.

• Evidence of Convergence: Despite these historical differences, there has been a trend toward convergence. In countries like France, where financial leverage was comparatively high, there has been a gradual decrease in the share of total debt. Conversely, in the US, financial leverage increased significantly by the early 2000s. Across many developed countries, the ratio of total debt to total assets has levelled out. There is a general trend toward the unification of different financing methods, with country-specific differences gradually disappearing.

• Impact of Nationality on Capital Structure: Empirical research confirms that a firm’s nationality, represented by the main shareholder’s nationality, influences its capital structure. American-owned firms are more inclined to leverage using debt, while Japanese firms tend to prefer equity due to cultural traditions and expectations. The degree and effectiveness of capital structure determinants are dependent on the country’s legal and financial traditions and institutions.