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Firms' Leverage and Export Quality: Evidence from France

  • Michele Bernini
  • Sarah Guillou
  • Flora Bellone

Is corporate financial structure a determinant of non-price competitiveness in export markets? In this paper we provide a positive answer to this question by finding that among illiquid exporters leverage is negatively correlated with the quality of their exported goods. This result is obtained on a sample including over 120,000 export flows of 6,229 French firms exporting within six HS6 products categories. The main methodological contribution of our study is the use of a flow-level measure of export quality obtained from the estimation of a structural model of demand (Berry, 1994); this estimator enhances the validity of our approach by avoiding the drawbacks of proxying for quality using export prices, as it is common practice in the trade literature. We argue that the negative impact of leverage on quality is consistent with theoretical contributions in the financial literature predicting that debt financing hampers the incentive to undertake quality upgrading investments.

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File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2013-29.pdf
File Function: First version, 2013
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Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2013-29.

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Length: 28 pages
Date of creation: Sep 2013
Date of revision:
Publication status: Published in Journal of Banking and Finance, 2015, vol. 59, pp. 280-296.
Handle: RePEc:gre:wpaper:2013-29
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