Liquidity Constraints and Firm’s Export Activity

Emanuele Forlani (emanuele.forlani@unipv.it)

No 291, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

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.

Keywords: Productivity; Credit constraints; Heterogenous firms; Trade (search for similar items in EconPapers)
JEL-codes: C14 D24 F10 F12 F13 F19 M40 (search for similar items in EconPapers)
Pages: 44
Date: 2010-04-30, Revised 2010-04-30
New Economics Papers: this item is included in nep-bec, nep-int and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:csl:devewp:291

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