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Financial constraints and foreign market entries or exits: firm-level evidence from France

Listed author(s):
  • Philippe Askenazy

    ()

  • Aida Caldera

    ()

  • Guillaume Gaulier

    ()

  • Delphine Irac

    ()

In contrast to a large strand of the literature that focuses on multi-product firms, this paper examines multi-destinations firms and the effects of financial constraints on newly served and newly exited destinations. Intuitively, financial constraints have a negative impact on firm expansion in new destinations by limiting firm ability to finance entry costs. The effect on exit from existing destinations is ambiguous. Due to financial constraints, a firm may face difficulties financing the recurrent costs of maintaining her market presence. But if financial constraints also affect entry, the firm may have strong incentives to stay in a given destination since it may not be able to fund the fixed entry costs associated to the reallocation of her portfolio of destinations. We develop a simple theoretical model which includes these two effects. We use a unique longitudinal dataset on French firms that contains information on export destinations of individual firms and allows to construct various firm-level measures of financial constraints to test these predictions. The empirical results suggest that financial constraints hamper a firms’s ability to cover fixed entry costs as well as recurrent costs associated with maintaining the presence in a foreign market, thereby reducing the probability of entering into a new foreign markets and increasing the probability of exiting from an existing foreign market. Copyright Kiel Institute 2015

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File URL: http://hdl.handle.net/10.1007/s10290-014-0206-5
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Article provided by Springer & Institut für Weltwirtschaft (Kiel Institute for the World Economy) in its journal Review of World Economics.

Volume (Year): 151 (2015)
Issue (Month): 2 (May)
Pages: 231-253

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Handle: RePEc:spr:weltar:v:151:y:2015:i:2:p:231-253
DOI: 10.1007/s10290-014-0206-5
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