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The influence of financial leverage of firms on their international trading activities

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  • Nakhoda, Aadil

Abstract

Using the BEEPS dataset from Enterprise Surveys, I study the effect of financial leverage (percentage of assets funded by bank loans) of firms on their decision to participate in various trading activities, such as exporting, importing and two way trading (firms that export and import). I determine that the intensity of financial leverage does not inhibit firms which export only from becoming two way traders, but it does inhibit firms which import only or operate only within the national market to become two way traders. The effect is determined to be stronger for firms that operate only within the national market than firms that import only. Since unobserved factors may influence both trading activities and financial leverage, I instrument for financial leverage using a variable that combines overdue payments to suppliers and the relationship of firms with their lenders. I contribute to the literature as I augment a model that determines the effect of financial leverage on various trading activities by implementing differences between industries due to their level of external dependence and asset tangibility. Hence, the effect of financial leverage is determined to vary between different trading activities within industries that exhibit different levels of external dependence and asset tangibility.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35765.

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Date of creation: May 2012
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Handle: RePEc:pra:mprapa:35765

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Keywords: Financial Leverage; International Trade; Financial Constraints; Two Way Trader; European Union; Firm-level Evidence;

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Cited by:
  1. Wagner, Joachim, 2013. "Credit constraints and exports: A survey of empirical studies using firm level data," Working Paper Series in Economics and Institutions of Innovation, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies 334, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  2. Joachim Wagner, 2014. "Credit constraints and exports: evidence for German manufacturing enterprises," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 46(3), pages 294-302, January.
  3. Aadil Nakhoda, 2013. "Bank Competition and Export Diversification," EERI Research Paper Series EERI RP 2013/12, Economics and Econometrics Research Institute (EERI), Brussels.

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