Credit constraints and firm market entry decision: Firm-level evidence from internationalizing Chinese multinationals

This paper studies the role and impact of credit constraints on firm’s export behavior. By using firm-level data from big data matching out of China’s Customs Database and Chinese Industrial Enterprise Database, we study the foreign market entry order strategy of the Chinese exporters and assess the role of credit constraints in the process of internationalization. The results confirm the negative effect of credit constraints on firms’ exporting behavior and entry-time decision. Firms with less credit constraints are more likely to be a pioneer in the foreign market, and those severely credit constrained firms are prevented from doing so because they lack sufficient liquidity. Our robustness tests with different product categories and ownership confirm the evidence. It is also found that a firm’s choice decision for being a pioneer or a follower in exporting each new product-market combination is jointly determined by the firm-level and host-country-level characteristics, and that firms with larger scale, higher productivity, lower production costs and more intense competition are more likely to be pioneers. We also find that the entry timing decision of the followers is influenced by the pioneers’ performance and product category. The results further confirm the existence of crowding out effect and spillover effect between pioneers and followers, and have important policy implications for China’s further financial (credit) market reform and for internationalizing Chinese MNEs.