The influence of financial leverage of firms on their international trading activities

Aadil Nakhoda

MPRA Paper from University Library of Munich, Germany

Abstract: Using the BEEPS dataset from Enterprise Surveys, I study the effect of financial leverage (percentage of assets funded by bank loans) of firms on their decision to participate in various trading activities, such as exporting, importing and two way trading (firms that export and import). I determine that the intensity of financial leverage does not inhibit firms which export only from becoming two way traders, but it does inhibit firms which import only or operate only within the national market to become two way traders. The effect is determined to be stronger for firms that operate only within the national market than firms that import only. Since unobserved factors may influence both trading activities and financial leverage, I instrument for financial leverage using a variable that combines overdue payments to suppliers and the relationship of firms with their lenders. I contribute to the literature as I augment a model that determines the effect of financial leverage on various trading activities by implementing differences between industries due to their level of external dependence and asset tangibility. Hence, the effect of financial leverage is determined to vary between different trading activities within industries that exhibit different levels of external dependence and asset tangibility.

Keywords: Financial Leverage; International Trade; Financial Constraints; Two Way Trader; European Union; Firm-level Evidence (search for similar items in EconPapers)
JEL-codes: D21 F1 F14 F4 (search for similar items in EconPapers)
Date: 2012-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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