Effects of Shareholder Groups on the Factoring Institutions Profitability: Evidence from Germany

  •  Sven Koch    


The significant role of trade credit in financing large companies and small and medium-sized enterprises leads to high stocks of account receivables within the balance sheets of German firms. As a result the importance of working capital financing is growing and the demand for accounts receivables financing (factoring) increases. The German factoring industry is dominated by banks. In addition to bank-owned financial institutions, many non-bank financial institutions are represented on the market. In a context of a continuing market consolidation, it is of interest whether there are differences in terms of profitability depending on shareholder groups (financial institution, non-financial institution, non holding). The German factoring market is an extremely growing market with further growth potential in an ongoing market consolidation. A further market consolidation is probable because the administrative expenses of small financial institutions and institutions without any holding are high. However, subsidiaries of a financial holding or non-financial holding show significantly lower administrative expenses. The results show that the profitability of the financial institutions is significantly influenced by the shareholders and the size of the institution. Financial institutions of a financial holding (bank-owned) are significantly less profitable than institutions without any holding or institutions of a non-financial holding. A similar picture emerges in the achieved margins of factors.

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