Financial constraints and foreign market entries or exits: firm-level evidence from France

Philippe Askenazy, Aida Caldera, Guillaume Gaulier and Delphine Irac ()

Review of World Economics (Weltwirtschaftliches Archiv), 2015, vol. 151, issue 2, 253 pages

Abstract: In contrast to a large strand of the literature that focuses on multi-product firms, this paper examines multi-destinations firms and the effects of financial constraints on newly served and newly exited destinations. Intuitively, financial constraints have a negative impact on firm expansion in new destinations by limiting firm ability to finance entry costs. The effect on exit from existing destinations is ambiguous. Due to financial constraints, a firm may face difficulties financing the recurrent costs of maintaining her market presence. But if financial constraints also affect entry, the firm may have strong incentives to stay in a given destination since it may not be able to fund the fixed entry costs associated to the reallocation of her portfolio of destinations. We develop a simple theoretical model which includes these two effects. We use a unique longitudinal dataset on French firms that contains information on export destinations of individual firms and allows to construct various firm-level measures of financial constraints to test these predictions. The empirical results suggest that financial constraints hamper a firms’s ability to cover fixed entry costs as well as recurrent costs associated with maintaining the presence in a foreign market, thereby reducing the probability of entering into a new foreign markets and increasing the probability of exiting from an existing foreign market. Copyright Kiel Institute 2015

Keywords: Firm heterogeneity; Financial constraints; Trade; F1; G1 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Working Paper: Financial constraints and foreign market entries or exits: firm-level evidence from France (2015)
Working Paper: Financial constraints and foreign market entries or exits: firm-level evidence from France (2015)
Working Paper: Financial Constraints and Foreign Market Entries or Exits: Firm-Level Evidence from France (2011)
Working Paper: Financial Constraints and Foreign Market Entries or Exits: Firm Level Evidence from France (2011)
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DOI: 10.1007/s10290-014-0206-5

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