Abstract

Empirical studies show that firms in different countries with integrated economies tend to have similar financial characteristics. In this paper, we test this hypothesis with U.S., Canadian, and Mexican manufacturing firms. The U.S., Canada, and Mexico are members of NAFTA (the North American Free Trade Agreement) which went into effect in 1994. We find that, despite about two decades of economic integration, the financial characteristics of U.S., Canadian, and Mexican manufacturing firms are still significantly different. U.S. manufacturing firms generally have more liquidity and less technical insolvency risk, higher profitability and sales growth rate, and they use less fixed assets in production compared with their Canadian and Mexican counterparts.

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