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Project

Essays on Corporate Finance in Export-Oriented Belgian Firms

This research project aims to establish an understanding of the linkage between export activities and issues in corporate finance of Belgian small and medium-sized enterprises (SMEs). In spite of SMEs being the main contributors to economic growth and development, the extant literature on the linkage between internationalization and corporate financing policy is confined to large listed firms. This research gap stems largely from a lack of data on the international trading behavior of smaller-sized firms in most countries. We, in contrast, draw on a proprietary, large-scale database, assembled by the National Bank of Belgium (NBB) that combines key financial information and firm-level information on the import and export transactions of Belgian firms, including privately held ones. The dissertation consists of three chapters.

The first chapter examines the manner in which export activities affect the capital structures and debt maturities of Belgian SMEs. We show that exporting firms carry substantially more financial debt than non-exporters do, and that this is at least partly attributable to the higher need for working capital financing within exporting firms (e.g. due to longer cash conversion cycles). Furthermore, besides having a higher need for working capital financing, it seems that the availability of short-term assets that can be used as collateral when obtaining short-term loans is of greater importance for exporters than for non-exporting firms. In particular, we find that the positive association between short-term pledgeable assets, such as inventories and receivables, is stronger for export-intensive firms and firms that export to distant and risky destinations. On the one hand, exporting is more risky and complex than is domestic selling. We know from prior literature that risky firms tend to borrow on a secured basis. On the other hand, trade finance instruments, such as the letter of credit, improve the collateral strength of receivables and inventories by offering protection against certain trade risks. These instruments are used more frequently by exporters (Ahn et al., 2011). Both channels could explain the tighter linkage between short-term collateral and short-term debt financing for exporting firms.

In the second chapter, we examine the impact of export activities on the financial flexibility of Belgian private firms. We find that exporters have superior financial flexibility, in the sense that they adjust their debt positions more frequently. This is partly due to their higher reliance on short-term debt financing. Since short-term liabilities can be altered more easily and at lower cost, exporters may experience superior financial flexibility. The high reliance on short-term debt, however, comes at the cost of being more sensitive to shocks in credit supply and profitability. The higher borrower quality of exporters (in terms of total factor productivity) may also play a role in exporters' leverage adjustment behavior. Finally, through the use of trade financing instruments, such as the letter of credit, information asymmetries between the firm and its bank may be reduced considerably as well, possibly allowing for more frequent leverage adjustments.

The final chapter studies the impact of labor force flexibility on the export participation and subsequent export performance of Belgian private manufacturing firms. Prior studies that attempt to explain the success of the international strategy of the firm focus on the availability of financial, technological and managerial resources (Greenaway et al., 2007; Ganotakis and Love, 2012). Since it is the employees that are involved in the actual execution of the strategy of the firm, it is not unlikely that the characteristics of the entire employee base are important drivers for export performance. Our results show that labor flexibility enhances export participation and export performance, albeit at diminishing rates. We approach labor flexibility as the ease with which firms can adjust their workforce in response to demand fluctuations and technological changes. Firms that can adjust the composition of their workforce more easily are presumed to be more likely to export and to be more successful at it, since inflexibility leads to higher labor costs and lower productivity. We find that the flexibility of the workforce stimulates export participation and enhances export performance, albeit at diminishing rates. Our findings imply that a flexibly employable workforce is indispensable to remain cost competitive and to stay ahead of competition in international markets. The efficient allocation of human capital throughout the firm enhances its competitiveness in foreign markets, both at the intensive and the extensive margin of trade. 

Date:1 Oct 2013 →  24 Jan 2018
Keywords:export, SME, corporate finance
Disciplines:Applied economics
Project type:PhD project