With the growth of international mergers like DaimlerChrysler, interest in executive compensation practices abroad, particularly in Germany, has increased. Using unique data sources for Germany, we find that similar to US firms, German firms also have agency problems caused by the separation of ownership from control, with ownership dispersion leading to higher compensation. In addition, there is evidence that bank influence has a negative impact on compensation.

We construct company panel data sets for manufacturing firms in Belgium, France, Germany, and the United Kingdom, covering the period 1978–1989. These data sets are used to estimate empirical investment equations, and to investigate the role played by financial factors in each country. A robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the United Kingdom than in the three continental European countries. This is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market-oriented U.K. financial system.