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Volatility, Financial Constraints and Trade

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  • Maria Garcia-Vega
  • Alessandra Guariglia

Abstract

We construct a dynamic monopolistic competition model with heterogeneous firms to study the links between firms’ earnings volatility, the degree of financial constraints that they face, their survival probabilities, and their export market participation decisions. Our model predicts that more volatile firms are more likely to face financial constraints and to go bankrupt, need to be more productive to stay in the market, and have more incentives to enter export markets. A further implication is that through market diversification, exports tend to stabilize firms’ total sales. We test these predictions, using a panel of 9292 UK manufacturing firms over the period 1993-2003. The data provide strong support to our model.

Suggested Citation

  • Maria Garcia-Vega & Alessandra Guariglia, 2008. "Volatility, Financial Constraints and Trade," Discussion Papers 08/04, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    • Handle: RePEc:not:notcfc:08/04
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    Cited by:

    1. Pierluigi Murro, 2013. "The Determinants Of Innovation: What Is The Role Of Risk?," Manchester School, University of Manchester, vol. 81(3), pages 293-323, June.
    2. Byrne, Joseph P & Spaliara, Marina-Eliza & Serafeim, Tsoukas, 2014. "Firm survival, uncertainty and financial frictions: Is there a financial uncertainty accelerator?," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-62, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Joseph P. Byrne & Marina-Eliza Spaliara & Serafeim Tsoukas, 2016. "Firm Survival, Uncertainty, And Financial Frictions: Is There A Financial Uncertainty Accelerator?," Economic Inquiry, Western Economic Association International, vol. 54(1), pages 375-390, January.
    4. Sarah Bridges & Alessandra Guariglia, 2008. "Financial Constraints, Global Engagement, And Firm Survival In The United Kingdom: Evidence From Micro Data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(4), pages 444-464, September.
    5. Andrea Caggese & Vicente Cunat, 2013. "Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 177-193, January.
    6. Álvarez, Roberto & Vergara, Sebastián, 2013. "Trade exposure, survival and growth of small and medium-size firms," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 185-201.
    7. Serhan Cevik & Fedor Miryugin, 2021. "Pandemics and firms: Drawing lessons from history," International Finance, Wiley Blackwell, vol. 24(3), pages 276-297, December.
    8. Baumöhl, Eduard & Iwasaki, Ichiro & Kočenda, Evžen, 2020. "Firm survival in new EU member states," Economic Systems, Elsevier, vol. 44(1).
    9. Edoardo Ferrucci & Roberto Guida & Valentina Meliciani, 2021. "Financial constraints and the growth and survival of innovative start‐ups: An analysis of Italian firms," European Financial Management, European Financial Management Association, vol. 27(2), pages 364-386, March.
    10. Guariglia, Alessandra & Mateut, Simona, 2010. "Inventory investment, global engagement, and financial constraints in the UK: Evidence from micro data," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 239-250, March.
    11. Boris Cournède & Paula Garda & Volker Ziemann, 2015. "Effects of Economic Policies on Microeconomic Stability," OECD Economics Department Working Papers 1201, OECD Publishing.
    12. Lin, Jane-Raung & Wang, Chia-Jane & Chou, De-Wei & Chueh, Fei-Chun, 2013. "Financial constraint and the choice between leasing and debt," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 171-182.
    13. Daniela MAGGIONI & Alessia LO TURCO & Mauro GALLEGATI, 2014. "Does export complexity matter for firms' output volatility?," Working Papers 407, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    14. Abdul Rashid & M. Kabir Hassan & Hafsa Karamat, 2021. "Firm size and the interlinkages between sales volatility, exports, and financial stability of Pakistani manufacturing firms," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(1), pages 111-134, March.
    15. Vannoorenberghe, Gonzague & Wang, Zheng & Yu, Zhihong, 2016. "Volatility and diversification of exports: Firm-level theory and evidence," European Economic Review, Elsevier, vol. 89(C), pages 216-247.
    16. Aleksandr Kljuènikov & Mehmet Civelek & Vladimír Krajèík & Petr Novák & Michal Èervinka, 2022. "Financial performance and bankruptcy concerns of SMEs in their export decision," Oeconomia Copernicana, Institute of Economic Research, vol. 13(3), pages 867-890, September.
    17. Serafeim Tsoukas & Marina-Eliza Spaliara, 2014. "Market Implied Ratings and Financing Constraints: Evidence from US Firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(1-2), pages 242-269, January.
    18. Mai Anh NGO, 2015. "Exporting and Firm-Level Credit Constraints-Evidence from Ghana," Working Papers DP-2015-27, Economic Research Institute for ASEAN and East Asia (ERIA).
    19. Jesus Maria Irigoyen & Josefa Monteagudo & Alexander Rutkowski, 2012. "A closer look at some drivers of trade performance at Member State level," Quarterly Report on the Euro Area (QREA), Directorate General Economic and Financial Affairs (DG ECFIN), European Commission, vol. 11(2), pages 29-39, July.
    20. Shi, Yanlin & Ho, Kin-Yip & Liu, Wai-Man, 2016. "Public information arrival and stock return volatility: Evidence from news sentiment and Markov Regime-Switching Approach," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 291-312.
    21. Maggioni, Daniela & Lo Turco, Alessia & Gallegati, Mauro, 2016. "Does product complexity matter for firms' output volatility?," Journal of Development Economics, Elsevier, vol. 121(C), pages 94-109.
    22. Gnangnon, Sèna Kimm, 2019. "Financial Development and Tax Revenue in Developing Countries: Investigating the International Trade and Economic Growth Channels," EconStor Preprints 206628, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    Firm-level volatility; Financial constraints; Firm survival; Exports.;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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