Exporting and capital investment: On the strategic behavior of exporters

By exporting, firms sell in markets whose business cycles are not perfectly correlated, and so can be expected to have more stable cash flows. If companies are liquidity constrained, this stability of cash flows can provide exporters with certain advantages over firms that operate solely in a domestic market. For instance, under the existence of liquidity constraints, more stable cash flows should foster more stable capital investments. Moreover, the expectation of more stable future cash flows and the information signal from commencing exporting can lessen the severity of liquidity constraints for exporters compared to non-exporters. We test these arguments by examining a stratified representative sample of the Spanish manufacturing sector from 1990 to 1998. Our results suggest that exporters' cash flows and capital investments are more stable than non-exporters'. Moreover, we find that liquidity constraints are less binding for exporters than for non-exporters. The richness of our data allows us to examine alternative explanations for the results we present. We conclude by discussing the strategic implications of our findings for firms.