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Liquidity Constraints and Firm’s Export Activity

  • Emanuele Forlani

    ()

    (Université catholique de Louvain – CORE)

This paper will assess the importance of internal firm resources in overcoming sunk entry costs associated with export. When firms are not able to raise additional external funds for investments, they are credit-constrained, and in such a case, new exporters have to rely on their internal liquidity to pay sunk costs. Using a data set of small and medium size Italian enterprises (SMEs), we find that entry probability in the export market is affected by the level of cash stock for constrained firms. We propose a methodology used to identify a priori constrained firms, employing index analysis as used in business economics. The estimation of the Euler equation for investments confirms the fitness of our classification. In addition we find that exporters show higher liquidity if they raise the number of destinations. Finally, we do not find evidence that entry in the export market improves firm\'s financial health, while ex-ante new entrants are found to be relatively more leveraged.

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File URL: http://www.dagliano.unimi.it/media/WP2010_291.pdf
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Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 291.

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Length: 44
Date of creation: 30 Apr 2010
Date of revision: 30 Apr 2010
Handle: RePEc:csl:devewp:291
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  1. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
  2. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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  4. Campa, Jose M. & Shaver, J. Myles, 2002. "Exporting and capital investment: On the strategic behavior of exporters," IESE Research Papers D/469, IESE Business School.
  5. Simon Gilchrist & Charles Himmelberg, 1999. "Investment: Fundamentals and Finance," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 223-274 National Bureau of Economic Research, Inc.
  6. Sandra, PONCET & Walter, STEINGRESS & Hylke, VANDENBUSSCHE, 2008. "Financial constraints in China : firm-level evidence," Discussion Papers (ECON - Département des Sciences Economiques) 2008048, Université catholique de Louvain, Département des Sciences Economiques.
  7. Bernard, A., 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," Working papers 97-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Nicolas Berman & Jérôme Héricourt, 2008. "Financial Factors and the Margins of Trade: Evidence from Cross-Country Firm-Level Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00321632, HAL.
  9. Berman, Nicolas & Héricourt, Jérôme, 2010. "Financial factors and the margins of trade: Evidence from cross-country firm-level data," Journal of Development Economics, Elsevier, vol. 93(2), pages 206-217, November.
  10. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  11. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
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  17. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
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  19. Inessa Love, 2003. "Financial Development and Financing Constraints: International Evidence from the Structural Investment Model," Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 765-791, July.
  20. Vlad Manole & Mariana Spatareanu, 2009. "Exporting, Capital Investment and Financial Constraints," Working Papers Rutgers University, Newark 2009-005, Department of Economics, Rutgers University, Newark.
  21. Konings, Jozef & Vandenbussche, Hylke, 2008. "Heterogeneous Responses of Firms to Trade Protection," CEPR Discussion Papers 6724, C.E.P.R. Discussion Papers.
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