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Trade Liberalization, Profitability, and Financial Leverage

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  • Baggs, Jennifer
  • Brander, James A.

Abstract

We investigate whether trade liberalization affects profitability and financial leverage, using Canadian data from the period following implementation of the Canada-U.S. Free Trade Agreement. We find that falling domestic tariffs are associated with declining profits and increasing leverage for import-competing firms, while falling foreign tariffs are associated with increasing profits and decreasing leverage for firms in export-oriented industries. This pattern is consistent with the "pecking order" theory of capital structure.

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Bibliographic Info

Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2005256e.

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Date of creation: 22 Jun 2005
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Handle: RePEc:stc:stcp3e:2005256e

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Keywords: Business adaptation and adjustment; Business performance and ownership; Financial statements and performance; International trade; Trade patterns;

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Citations

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Cited by:
  1. Nakhoda, Aadil, 2012. "The influence of financial leverage of firms on their international trading activities," MPRA Paper 35765, University Library of Munich, Germany.
  2. Holger Breinlich, 2006. "Trade Liberalization and Industrial Restructuring through Mergers and Acquisitions," CEP Discussion Papers dp0717, Centre for Economic Performance, LSE.
  3. Jen Baggs & Eugene Beaulieu & Loretta Fung, 2009. "Firm survival, performance, and the exchange rate," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 393-421, May.
  4. Moser, Christoph & Rose, Andrew K, 2011. "Who Benefits from Regional Trade Agreements? The View from the Stock Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8566, C.E.P.R. Discussion Papers.
  5. Seyoum, Belay, 2007. "Trade liberalization and patterns of strategic adjustment in the US textiles and clothing industry," International Business Review, Elsevier, Elsevier, vol. 16(1), pages 109-135, February.

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