Liquidity Constraints and Firm's Export Activity

Abstract

This paper will assess the importance of internal firm resources in overcoming sunk entry costs associated with export. When firms are not able to raise additional external funds for investments, they are credit-constrained, and in such a case, new exporters have to rely on their internal liquidity to pay sunk costs. Using a data set of small and medium size Italian enterprises (SMEs), we find that entry probability in the export market is affected by the level of cash stock for constrained firms. We propose a methodology used to identify a priori constrained firms, employing index analysis as used in business economics. The estimation of the Euler equation for investments confirms the fitness of our classification. In addition we find that exporters show higher liquidity if they raise the number of destinations. Finally, we do not find evidence that entry in the export market improves firm's financial health, while ex-ante new entrants are found to be relatively more leveraged.

Temporary trade and heterogeneous firms

“…Capital cost is proxied by credit risk and we chose an index used by banks to assess credit risks suggested by BIS (2006) and investigated by Forlani (2010). The Solvency Ratio (SR) is the ratio of net assets of the firm plus long-term debts to total assets plus leftover stock.…”

Financial Health, Exports and Firm Survival: Evidence from UK and French Firms

“…Studies such as Minetti and Zhu (2011), Berman and Hericourt (2010), Forlani (2010) and Muuls (2005) show that firms' export decisions are negatively affected by liquidity constraints, while Greenaway et al (2007) and Bellone et al (2010) also look at the impact export activity has on the financial health of the firm.…”

“…It is by now well accepted that there is a link between the financial health of a firm and its export activity. Studies such as Minetti and Zhu (2011), Berman and Hericourt (2010), Forlani (2010) and Muuls (2005) show that firms' export decisions are negatively affected by liquidity constraints, while Greenaway et al (2007) and Bellone et al (2010) also look at the impact that export activity has on the financial health of the firm. 1 Here, Greenaway et al (2007) find, based on UK data, that exporting improves firms' financial health, while Bellone et al (2010) do not find any evidence for this in their French firmlevel data.…”

Credit Constraints and the Extensive Margins of Exports: First Evidence for German Manufacturing

“…Given that the extra costs of exporting often have to be paid for each good that is exported and for each destination country we expect that credit constraints will be negatively related to these extensive margins. Studies for Belgium (Muuls 2008(Muuls , 2015, France (Askenazy et al 2011), Italy (Forlani 2010, Secchi et al 2014, Tamagni 2013 and China (Manova et al 2011) report results that are in line with these hypotheses.…”