Export Activity and Firms’ Financial Constraints

Abstract

This chapter assesses the role of firms’ financial resources used to begin export activity. We propose a new methodology to identify a priori constrained firms, exploiting a rich dataset on Italian firms’ assets and liabilities. We provide evidence that the entry probability in the export market is affected by the level of cash stock for the constrained firms: an increase of 10% in the cash stock of constrained firms raises by an additional 0.17% the entry probability of rationed firms, compared to unconstrained ones. We also find that internal liquidity is positively correlated with the extensive margin of trade: an expansion in new destination market is associated to higher liquidity levels. In particular, liquidity is mainly used for investments in the development of new products for foreign markets.