Flexibility costs of debt: Danish exporters during the cartoon crisis

Benjamin U. Friedrich and Michał Zator

Journal of Financial Economics, 2023, vol. 148, issue 2, 91-117

Abstract: We study how firms respond to an unexpected demand shock, exploiting the 2006 boycott of Danish products after publication of Muhammad caricatures. On average, affected firms lose the majority of their exports to Muslim countries and experience a significant decrease in total sales. However, firms with low financial leverage redirect sales to new and existing product-destination markets in non-Muslim countries, which allows them to fully offset their losses. In contrast, high-leverage firms do not enter new markets and instead actively downsize. Our results highlight the importance of financial flexibility in times of crisis, consistent with declarations of practitioners.

Keywords: Flexibility; Capital structure; Product markets; Consumer boycott (search for similar items in EconPapers)
JEL-codes: F14 G31 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:148:y:2023:i:2:p:91-117

DOI: 10.1016/j.jfineco.2023.03.001

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