Trade Liberalization, Profitability, and Financial Leverage

Jennifer Baggs and James A. Brander

Analytical Studies Branch Research Paper Series from Statistics Canada, Analytical Studies Branch

Abstract: 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.

Keywords: Business performance and ownership; International trade; Financial statements and performance; Business adaptation and adjustment; Trade patterns (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-int
Date: 2005-06-22
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Related works:
Journal Article: Trade liberalization, profitability, and financial leverage (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:stc:stcp3e:2005256e

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