Trade and Firm Financing / Paul Bergin, Ling Feng, Ching-Yi Lin.

Format:

Book

Author/Creator:

Bergin, Paul.

Contributor:

National Bureau of Economic Research.

Feng, Ling.

Lin, Ching-Yi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26266.

NBER working paper series no. w26266

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

This paper studies how financial frictions pose a barrier to export entry by altering the firm's long-term capital structure, and thereby affecting the ability to finance sunk entry costs. Our focus on long-term firm financing stands in contrast with the emphasis in recent trade literature on the financing of short-term working capital as a barrier to export entry. We provide evidence that U.S. firms engaged in export tend to have leverage ratios higher than non-exporting firms in terms of long-term debt, but not in terms of short-term debt. To explain this fact and understand its implications, we marry a corporate finance model of capital structure, featuring an endogenous choice between equity and long-term debt financing, with a trade model featuring heterogeneous firms. The model of optimal capital structure indicates that in the long run, exporting firms will prioritize reducing the cost of long-term capital, used to pay sunk costs, over relaxing a short-term working capital constraint, which could be used to scale up production.

Notes:

Print version record

September 2019.