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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:
Handle: RePEc:gre:wpaper:2013-29
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  1. Flora Bellone & Patrick Musso & Lionel Nesta & Stefano Schiavo, 2008. "Financial Constraints and Firm Export Behavior," Department of Economics Working Papers 0816, Department of Economics, University of Trento, Italia.
  2. Xavier Boutin & Giacinta Cestone & Chiara Fumagalli & Giovanni Pica & Nicolas Serrano-Velarde, 2011. "The Deep-Pocket Effect of Internal Capital Markets," Working Papers 403, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Askenazy, Ph. & Caldera, A. & Gaulier, G. & Irac, D., 2011. "Financial Constraints and Foreign Market Entries or Exits: Firm-Level Evidence from France," Working papers 328, Banque de France.
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  6. Kugler, Maurice & Verhoogen, Eric A, 2009. "The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia," CEPR Discussion Papers 7119, C.E.P.R. Discussion Papers.
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  8. Fan, Haichao & Lai, Edwin L.-C. & Li, Yao Amber, 2012. "Credit Constraints, Quality, and Export Prices: Theory and Evidence from China," MPRA Paper 40857, University Library of Munich, Germany.
  9. Kalina Manova & Zhiwei Zhang, 2009. "Export Prices Across Firms and Destinations," NBER Working Papers 15342, National Bureau of Economic Research, Inc.
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  11. David A. Matsa, 2011. "Running on Empty? Financial Leverage and Product Quality in the Supermarket Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 137-73, February.
  12. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  13. Aivazian, Varouj A. & Ge, Ying & Qiu, Jiaping, 2005. "The impact of leverage on firm investment: Canadian evidence," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 277-291, March.
  14. Coricelli, Fabrizio & Driffield, Nigel & Pal, Sarmistha & Roland, Isabelle, 2012. "When does leverage hurt productivity growth? A firm-level analysis," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1674-1694.
  15. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc.
  16. Irving B. Kravis & Robert E. Lipsey, 1971. "Price Competitiveness in World Trade," NBER Books, National Bureau of Economic Research, Inc, number krav71-1.
  17. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  18. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
  19. Paulo Macas Nunes & Tiago Neves Sequeira & Zelia Serrasqueiro, 2007. "Firms' leverage and labour productivity: a quantile approach in Portuguese firms," Applied Economics, Taylor & Francis Journals, vol. 39(14), pages 1783-1788.
  20. Minetti, Raoul & Zhu, Susan Chun, 2011. "Credit constraints and firm export: Microeconomic evidence from Italy," Journal of International Economics, Elsevier, vol. 83(2), pages 109-125, March.
  21. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  22. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
  23. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
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