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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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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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