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

Philippe Askenazy, Aida Caldera (), Guillaume Gaulier and Delphine Irac
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Aida Caldera: OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development
Delphine Irac: Centre de recherche de la Banque de France - Banque de France

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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.

Keywords: Trade; Financial constraints; Firm heterogeneity (search for similar items in EconPapers)
Date: 2015-05
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Citations: View citations in EconPapers (9)

Published in Review of World Economics, 2015, 151 (2), pp.231-253. ⟨10.1007/s10290-014-0206-5⟩

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Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-01203566

DOI: 10.1007/s10290-014-0206-5

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