Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 268: External finance, collateralizable assets and export market entry

Torbjörn Halldin ()
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Torbjörn Halldin: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden

Abstract: This paper examines the relationship between collateralizable assets and export market entry. The ability to finance the sunk entry costs associated with an international expansion is one of the factors determining whether or not a firm starts engaging in export activities. Using a large panel of Swedish manufacturing firms over the 1997-2006 period, a firm’s access to external finance is proxied by its degree of collateralizable assets. The main finding of the paper is that tangible assets, which can be pledged as collateral in loan applications, constitute an important determinant of export market entry. However, accounts receivable and inventories as an alternative means of facilitating the access to external finance, is not found to influence the entry decision. Previous literature has made little attempt in explaining why future exporters might encounter difficulties in obtaining external finance. Therefore, the novelty of the paper and its contribution to the existing literature on financially constrained exporters is that it investigates an underlying reason to why firms might experience difficulties in financing an export market entry through external finance.

Keywords: Export market entry; collateralizable assets; firm heterogeneity; sunk costs

JEL-codes: F14; G32; M21

33 pages, March 16, 2012

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