Financial constraint, trust, and export performances: firm-level evidence from Africa

Abstract

Several existing studies have documented a negative relationship between firm financial constraint and export activities but do not attempt to examine factors that could attenuate this relationship in Africa. In this paper, we examine the effect of financial constraint on exports in Africa and explore how the level of trust in countries where firms are located shapes this relationship. We combine the World Bank Enterprise Surveys with different measures of country-level personal and interpersonal trust computed from the Afrobarometer surveys of 19 African countries. Our results show that financial constraints negatively affect export activities. However, this negative effect is attenuated for firms that are located in trust-intensive societies. These findings are robust to different specifications. Interestingly, we find that small and medium-sized enterprises in Africa are more likely to be affected by financial constraints but also more likely to benefit from a higher level of both personal and interpersonal trust, while for larger firms only interpersonal trust matters.

Trust Institutions, Perceptions of Economic Performance and the Mitigating Role of Political Diversity

“…In finance development, the effect of trust is also explored. Overall, a large number of works support that trust is beneficial to financial development (Pevzner et al, 2015;Guiso et al, 2004;Konte & Ndubuisi, 2021).…”

“…The nexus between social capital measured by trust and socio-economic conditions has been widely explored (Pevzner et al, 2015;Guiso et al, 2004;Konte & Ndubuisi, 2021;D'Hombres et al, 2009 ;Herian et al, 2014;Carpiano & Fitterer, 2014;Hollard & Sene, 2016). Similarly, a large body of studies in the literature has examined the effects of diversity on several economic outcomes (Easterly & Levine, 1997;Collier, 2001;Alesina et al, 2003;Alesina & La Ferrara, 2005;Montalvo & Reynal-Querol, 2005;Ager & Brückner, 2013;Gisselquist et al, 2016;Wei & Suen, 2019;Lee et al, 2019).…”

“…Moreover, our measurement of trust also differs from those employed in other studies. Accordingly, we define trust on institutions such as the president, the parliament or national assembly, police, courts of law, traditional leaders, religious leaders and local government while previous studies have built on trust in neighbours, other people, inter alia (D'Hombres et al, 2009;Herianet al, 2014;Carpiano & Fitterer, 2014;Hollard & Sene, 2016;Pevzner et al, 2015;Guiso et al, 2004;Konte & Ndubuisi, 2021).…”

Revisiting the Moderation Effect of Network on the Export Barrier –Export Performance in the Cameroon Context

“…The financial constraint also deteriorates firms' investment and lack of such investment in exporting means limits competition and negative affects export performance (Kazmi et al, 2020). The financial constraint also negatively affects export performance because due to the sunk cost involved in exporting and the time lag between exporting and receiving revenue, many SMEs turn to limit their operations which makes them less competitive in foreign markets (Saeed and Vincent, 2011;Konte and Ndubuisi, 2021;Máñez and Vicente-Chirivella, 2021). This negative relationship between export barrier on export performance is evident in existing literature (e.g., Sinkovics et al, 2018;Suarez-Ortega 2003;Altintas et al, 2007;Leonidou 2004;Tesfom et al, 2006).…”

Small firms amidst COVID‐19: Financial constraints and role of government support

“…Access to finance is vital for the survival of SMEs during the pandemic crisis. Several studies have shown that SMEs are financially more constrained than large firms (Beck & Demirguc‐Kunt, 2006 ; Konte & Ndubuisi, 2021 ; Kuntchev et al, 2012 ), and the presence of financial constraints exerts a negative impact on the growth and survival of SMEs (Oliveira & Fortunato, 2006 ). For example, one study estimates that the presence of financial constraints is associated with a 10 percentage point reduction in the growth of small firms (Beck et al, 2008 ).…”