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Investment Policies of Banks in US vs Japan or Germany

It is frequently argued that Japanese and German companies can afford to have more financial leverage and to follow lower dividend payout policies than U.S. companies because they are largely owned by financial institutions that have long-term horizons.

Does this argument make economic sense? If so, explain why, and if not, why not. What other factors might explain differences in capital structure and dividend policy across countries?

Solution Preview

The essence of the argument is that foreign financial institutions are buying stock in companies they perceive to be long term growth companies. Growth companies (in the US too) tend to plow earnings back into buying more assets, as opposed to paying out more dividends. Examples of growth mode are Google and Ebay which are buying up companies (assets) like crazy.

The argument makes a great deal of sense ...

Solution Summary

The solution explains the basic difference in philosophy between investing into different types of companies. Further included is a list of 12 other factors that could influence capital structure and dividend policies across countries.