Firm Exports, Foreign Ownership, and the Global Financial Crisis

Abstract

The exceptional export performance of foreign-owned firms is a well-established stylized fact, but the underlying mechanism is not yet fully understood. In this paper, we provide theory and empirical evidence demonstrating that this fact can be explained by ownership differences in access to finance. We develop a theoretical model of international trade featuring firm heterogeneity and credit market frictions in which foreign-owned firms can access foreign capital markets via their multinational parents. The model predicts a financial advantage of foreign ownership for exporting that gains importance as credit conditions deteriorate. To empirically identify this effect, we estimate a triple differences model using rich micro data from Spain that exploits the global financial crisis as an exogenous shock to credit supply. We find that foreign ownership significantly stabilized firm exports when liquidity dried out in the crisis, in particular among small and financially vulnerable firms.

Financial Development and Export Concentration

“…I show that the estimated effects remain robust when addressing potential endogeneity concerns of financial development and accounting for alternative determinants of export concentration including variation in physical and human capital accumulation, differences in total factor productivity, and the quality of legal systems. Additionally, the focus on export concentration towards large firms raises the concern that results are driven by credit conditions in the destination rather than the origin country of exports, as multinational corporations benefit from the provision of credit through foreign affiliates (Manova et al, 2015;Bilir et al, 2019;Eppinger and Smolka, 2020). Consistent with these studies, I show that importer's financial development has a positive impact on export concentration, while the effect of exporter's credit conditions remains stable.…”

Firm‐level characteristics and the impact of COVID‐19: Examining the effects of foreign ownership and international trade

“…Turning to studies that examine whether MNCs and domestic firms perform differently in response to negative economic shocks, Eppinger and Smolka (2020) analyse firm‐level data for Spain and find that MNCs significantly increased their share of sales on international markets during the financial crisis of 2007–2008. The effect of foreign ownership on export intensity is particularly strong in financially vulnerable industries, reflecting the importance of MNCs having easier access to finance.…”

“…To correct for this possible bias, we use a propensity score reweighting approach (Busso et al, 2014; Hirano et al, 2003). Similar approaches have been applied to estimate the effect of foreign ownership on the composition of types of investment (Garicano & Steinwender, 2016) and international trade (Boddin et al, 2017; Eppinger & Smolka, 2020). In the present setting, the reweighting approach involves estimating a probit model on the probability that a firm was foreign‐owned prior to the onset of the pandemic and then use the estimated propensity scores $$$ \hat{p} $$$ to weight the firms in the estimation of regression model (1).…”

Foreign Ownership and Capital Structure in Times of Crises: Case of South Korea

“…Besides the monitoring role of foreign ownership, foreign investors may provide a broader set of credit sources [4], which is especially valuable during credit crunches. Eppinger and Smolka [23] conclude that foreign ownership provides companies with a financial advantage. Both the 1997 Asian and the 2008 global crises resulted in the deterioration of credit conditions, while no problems with credit supply were present during the 2020 COVID-19 crisis, which prompts investigating the role of foreign ownership as an additional channel of financing i.e., a direct substitute of debt.…”

“…Foreign investors may provide a more extensive set of credit sources [4], which can be used in periods of credit crunches and liquidity constraints [23]. As a result, it may imply that companies with foreign investors can attract more debt during crises than companies without foreign investors.…”