Financial Constraints and Exports: Evidence from Chinese Firms

This article assesses the role of credit constraints for exports at the firm level. Theoretical models by Chaney, Manova, and others suggest that credit constraints are detrimental for exports. We examine this hypothesis empirically at the firm level by using data on Chinese enterprises compiled by the National Bureau of Statistics of China. We approximate credit constraints by financial variables such as a firm's debt ratio or the liquid-to-total-capital ratio. We then consider the impact of these financial fundamentals on the extensive and the intensive margins of firm-level exports. In particular, we focus on the impact of credit constraints on a firm's propensity to export at all (which we model by means of a logit model) and on a firm's export-sales ratio (which we model by a fractional response model based on Papke and Wooldridge (1996 Journal of Applied Econometrics 11, 619-32). The empirical results confirm the negative relationship between exports and credit constraints suggested by previous theoretical work. Credit constrained firms are less likely to be exporters and have lower export quotas. The results are robust when using alternative explanatory variables and including further explanatory variables.