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Trade Liberalization, Profitability, and Financial Leverage

  • Baggs, Jennifer
  • Brander, James A.

We investigate whether trade liberalization affects profitability and financial leverage, using Canadian data from the period following implementation of the Canada-U.S. Free Trade Agreement. We find that falling domestic tariffs are associated with declining profits and increasing leverage for import-competing firms, while falling foreign tariffs are associated with increasing profits and decreasing leverage for firms in export-oriented industries. This pattern is consistent with the "pecking order" theory of capital structure.

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Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2005256e.

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Date of creation: 22 Jun 2005
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Handle: RePEc:stc:stcp3e:2005256e
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  31. Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2003. "The Euro is Good After All: Evidence from Corporate Valuations," CEPR Discussion Papers 3910, C.E.P.R. Discussion Papers.
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