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

Listed author(s):
  • Philippe Askenazy

    (PSE - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris)

  • Aida Caldera

    ()

    (OCDE - Organisation de Coopération et de Développement Economiques)

  • Guillaume Gaulier

    ()

    (Centre de recherche de la Banque de France - Banque de France)

  • Delphine Irac

    (Centre de recherche de la Banque de France - Banque de France)

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.

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Paper provided by HAL in its series PSE - Labex "OSE-Ouvrir la Science Economique" with number halshs-01203566.

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Length:
Date of creation: May 2015
Publication status: Published in Review of World Economics, Springer Verlag, 2015, 151 (2), pp.231-253. <10.1007/s10290-014-0206-5>
Handle: RePEc:hal:pseose:halshs-01203566
DOI: 10.1007/s10290-014-0206-5
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01203566
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

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  25. repec:pse:psecon:2008-26 is not listed on IDEAS
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