IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v61y2021i1d10.1007_s00181-020-01865-9.html
   My bibliography  Save this article

Financing constraints and exports: Evidence from manufacturing firms in India

Author

Listed:
  • Shahana Mukherjee
  • Rupa Chanda

Abstract

This paper examines the relationship between external financing constraints and the intensive margin of exports for manufacturing firms in India. We use a sample of nearly 3200 firms over the period: 2000–2015 and construct a multivariate index proposed by Musso and Schiavo (J Evol Econ 18(2):135–149, 2008) to estimate the degree of external financing constraints. We find that an increase in the degree of external financing constraints faced is associated with lower firm-level exports and this result holds even after accounting for endogeneity issues. We next examine whether business group-affiliated firms are less dependent on external finance to support their overseas sales. We find that financing constraints are a significant binding factor even for firms with access to internal capital markets. Moreover, we find that firm size matters, as a decline in the financial health of small- and medium-sized firms is associated with a significantly larger decline in their export levels. Finally, we find some evidence of industry-level heterogeneity, as financing constraints lead to a more pronounced decline in the exports of firms in industries with greater dependence on external finance.

Suggested Citation

  • Shahana Mukherjee & Rupa Chanda, 2021. "Financing constraints and exports: Evidence from manufacturing firms in India," Empirical Economics, Springer, vol. 61(1), pages 309-337, July.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:1:d:10.1007_s00181-020-01865-9
    DOI: 10.1007/s00181-020-01865-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00181-020-01865-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00181-020-01865-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 711-744.
    2. Patrick Musso & Stefano Schiavo, 2008. "The impact of financial constraints on firm survival and growth," Journal of Evolutionary Economics, Springer, vol. 18(2), pages 135-149, April.
    3. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    4. Flora Bellone & Patrick Musso & Lionel Nesta & Stefano Schiavo, 2010. "Financial Constraints and Firm Export Behaviour," The World Economy, Wiley Blackwell, vol. 33(3), pages 347-373, March.
    5. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    6. Blandina Oliveira & Adelino Fortunato, 2006. "Firm Growth and Liquidity Constraints: A Dynamic Analysis," Small Business Economics, Springer, vol. 27(2), pages 139-156, October.
    7. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 1.
    8. Berman, Nicolas & Héricourt, Jérôme, 2010. "Financial factors and the margins of trade: Evidence from cross-country firm-level data," Journal of Development Economics, Elsevier, vol. 93(2), pages 206-217, November.
    9. Eichengreen, Barry & Gupta, Poonam & Kumar, Rajiv (ed.), 2010. "Emerging Giants: China and India in the World Economy," OUP Catalogue, Oxford University Press, number 9780199575077.
    10. Muûls, Mirabelle, 2015. "Exporters, importers and credit constraints," Journal of International Economics, Elsevier, vol. 95(2), pages 333-343.
    11. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    12. Manos, Ronny & Murinde, Victor & Green, Christopher J., 2007. "Leverage and business groups: Evidence from Indian firms," Journal of Economics and Business, Elsevier, vol. 59(5), pages 443-465.
    13. Minetti, Raoul & Zhu, Susan Chun, 2011. "Credit constraints and firm export: Microeconomic evidence from Italy," Journal of International Economics, Elsevier, vol. 83(2), pages 109-125, March.
    14. Montek S. Ahluwalia, 2002. "Economic Reforms in India Since 1991: Has Gradualism Worked?," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 67-88, Summer.
    15. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 2.
    16. Chaney, Thomas, 2016. "Liquidity constrained exporters," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 141-154.
    17. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    18. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
    19. Greenaway, David & Guariglia, Alessandra & Kneller, Richard, 2007. "Financial factors and exporting decisions," Journal of International Economics, Elsevier, vol. 73(2), pages 377-395, November.
    20. Chaney, Thomas, 2016. "Liquidity constrained exporters," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 141-154.
    21. repec:cii:cepiie:2014-q4-140-20 is not listed on IDEAS
    22. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," The Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
    23. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2005. "SMEs, Growth, and Poverty: Cross-Country Evidence," Journal of Economic Growth, Springer, vol. 10(3), pages 199-229, September.
    24. repec:hal:spmain:info:hdl:2441/5g3sadr9h8gbri8hrtq0h6au2 is not listed on IDEAS
    25. Thorsten Beck & Asli Demirgüç-Kunt, 2004. "SMEs, Growth, and Poverty," World Bank Publications - Reports 11278, The World Bank Group.
    26. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    27. Priya Nagaraj, 2014. "Financial Constraints and Export Participation in India," International Economics, CEPII research center, issue 140, pages 19-35.
    28. Ghosh, Saibal, 2006. "Did financial liberalization ease financing constraints? Evidence from Indian firm-level data," Emerging Markets Review, Elsevier, vol. 7(2), pages 176-190, June.
    29. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    30. repec:cii:cepiei:2014-q4-140-2 is not listed on IDEAS
    31. Robert Lensink & Remco van der Molen & Shubashis Gangopadhyay, 2003. "Business groups, financing constraints and investment: the case of India," Journal of Development Studies, Taylor & Francis Journals, vol. 40(2), pages 93-119.
    32. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165, Elsevier.
    33. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    34. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. José Manuel Mansilla-Fernández & Juliette Milgram-Baleix, 2023. "Working capital management, financial constraints and exports: evidence from European and US manufacturers," Empirical Economics, Springer, vol. 64(4), pages 1769-1810, April.
    2. Jun Du & Bach Nguyen, 2024. "The ‘play’ of institutions and firm investment: Evidence from a transition economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2740-2765, July.
    3. Sugandha Huria & Kriti Sharma & Neha Jain & Ashley Jose, 2022. "Digitalization and Exports: A case of Indian Manufacturing MSMEs," Working Papers 2261, Indian Institute of Foreign Trade.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saira Qasim & Marian Rizov & Xufei Zhang, 2021. "Financial constraints and the export decision of Pakistani firms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4557-4573, July.
    2. Dai, Mi & Nucci, Francesco & Pozzolo, Alberto F. & Xu, Jianwei, 2021. "Access to finance and the exchange rate elasticity of exports," Journal of International Money and Finance, Elsevier, vol. 115(C).
    3. José Manuel Mansilla-Fernández & Juliette Milgram-Baleix, 2023. "Working capital management, financial constraints and exports: evidence from European and US manufacturers," Empirical Economics, Springer, vol. 64(4), pages 1769-1810, April.
    4. Almila Burgac Cil & Fikret Dulger, 2018. "Financial Constraints, Firm Characteristics and Exports: Evidence from Turkish Manufacturing Firms," International Journal of Economics and Financial Issues, Econjournals, vol. 8(1), pages 168-174.
    5. Muûls, Mirabelle, 2015. "Exporters, importers and credit constraints," Journal of International Economics, Elsevier, vol. 95(2), pages 333-343.
    6. Yan, Bing & Zhang, Yu & Shen, Yanzhi & Han, Jian, 2018. "Productivity, financial constraints and outward foreign direct investment: Firm-level evidence," China Economic Review, Elsevier, vol. 47(C), pages 47-64.
    7. Juan A. Máñez Castillejo & Oscar Vicente-Chirivella, 2019. "Exports of Spanish manufacturing firms and financial constraints," Working Papers 1921, Department of Applied Economics II, Universidad de Valencia.
    8. Federico J. Diez & Jesse Mora & Alan C. Spearot, 2016. "Firms in international trade," Working Papers 16-25, Federal Reserve Bank of Boston.
    9. Duc Bao Nguyen & Anne‐Gaël Vaubourg, 2021. "Financial intermediation, trade agreements and international trade," The World Economy, Wiley Blackwell, vol. 44(3), pages 788-817, March.
    10. Joachim Wagner, 2016. "Credit Constraints and Exports: A Survey of Empirical Studies Using Firm Level Data," World Scientific Book Chapters, in: Microeconometrics of International Trade, chapter 12, pages 401-421, World Scientific Publishing Co. Pte. Ltd..
    11. Filomena Pietrovito & Alberto Franco Pozzolo, 2021. "Credit constraints and exports of SMEs in emerging and developing countries," Small Business Economics, Springer, vol. 56(1), pages 311-332, January.
    12. Fauceglia, Dario, 2015. "Credit constraints, firm exports and financial development: Evidence from developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 53-66.
    13. Zhou, Tianhang & Li, Xue & Yan, Guo & Li, Jie, 2022. "How productivity and credit constraints affect exports differently? Firm-level evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 207-230.
    14. Dinopoulos, Elias & Kalyvitis, Sarantis & Katsimi, Margarita, 2020. "Variable export price elasticity, product quality, and credit constraints: Theory and evidence from Greek firms," Journal of International Money and Finance, Elsevier, vol. 104(C).
    15. Bergin, Paul R. & Feng, Ling & Lin, Ching-Yi, 2021. "Trade and firm financing," Journal of International Economics, Elsevier, vol. 131(C).
    16. Li, Jie & Lan, Liping & Ouyang, Zhigang, 2020. "Credit constraints, currency depreciation and international trade," Journal of International Money and Finance, Elsevier, vol. 104(C).
    17. Subash Sasidharan & M. Padmaja, 2018. "Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India," Asian Development Review, MIT Press, vol. 35(1), pages 108-132, March.
    18. Filipe Silva & Carlos Carreira, 2011. "Financial Constraints and Exports: An Analysis of Portuguese Firms During the European Monetary Integration," Notas Económicas, Faculty of Economics, University of Coimbra, issue 34, pages 35-56, December.
    19. Wagner, Joachim, 2015. "Credit constraints and the extensive margins of exports: First evidence for German manufacturing," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-17.
    20. Angelo Secchi & Federico Tamagni & Chiara Tomasi, 2016. "Export price adjustments under financial constraints," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(3), pages 1057-1085, August.

    More about this item

    Keywords

    Financial constraints; Intensive margin of exports; Firm size; Firm heterogeneity; Endogeneity; External financial dependence;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:61:y:2021:i:1:d:10.1007_s00181-020-01865-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.