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Volatility, Financial Constraints and Trade

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  • Maria Garcia-Vega
  • Alessandra Guariglia

Abstract

We construct a dynamic monopolistic competition model with heterogeneous firms to study the links between firms’ earnings volatility, the degree of financial constraints that they face, their survival probabilities, and their export market participation decisions. Our model predicts that more volatile firms are more likely to face financial constraints and to go bankrupt, need to be more productive to stay in the market, and have more incentives to enter export markets. A further implication is that through market diversification, exports tend to stabilize firms’ total sales. We test these predictions, using a panel of 9292 UK manufacturing firms over the period 1993-2003. The data provide strong support to our model.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 08/04.

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Handle: RePEc:not:notcfc:08/04

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Keywords: Firm-level volatility; Financial constraints; Firm survival; Exports.;

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Cited by:
  1. Pierluigi Murro, 2013. "The Determinants Of Innovation: What Is The Role Of Risk?," Manchester School, University of Manchester, University of Manchester, vol. 81(3), pages 293-323, 06.
  2. Andrea Caggese & Vicente Cunat, 2013. "Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 177-193, January.
  3. Guariglia, Alessandra & Mateut, Simona, 2010. "Inventory investment, global engagement, and financial constraints in the UK: Evidence from micro data," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 239-250, March.
  4. Lin, Jane-Raung & Wang, Chia-Jane & Chou, De-Wei & Chueh, Fei-Chun, 2013. "Financial constraint and the choice between leasing and debt," International Review of Economics & Finance, Elsevier, Elsevier, vol. 27(C), pages 171-182.

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