Financial leverage and export quality: evidence from France

Flora Bellone (1) , Michel Bernini , Sarah Guillou (1)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

Does corporate financial structure matter for a firm’s ability to compete in international markets through output quality? This study answers this question by using firm-level export and balance sheet data covering a large sample of French manufacturing exporters over the period 1997–2007. The main result is that there is a negative causal relation between a firm’s leverage and export quality, where quality is inferred from the estimation of a discrete choice model of foreign consumers’ demand. This result is robust across different specifications and estimation techniques. In addition, by estimating investment models we find that the negative impact of leverage on quality is consistent with theories predicting that the agency cost of debt determines suboptimal investment.

Keywords: Capital structure; Investment; Output quality

Keywords: Exports

Domains: Economics and Finance

Flora Bellone, Michel Bernini, Sarah Guillou. Financial leverage and export quality: evidence from France. Journal of Banking and Finance, 2015, 59, pp.280 - 296. ⟨10.1016/j.jbankfin⟩. ⟨hal-03470073⟩