The Determinants of Firm Exit from Exporting: Evidence for the UK

Abstract

This study seeks to understand to what extent new exporters are able to survive in international markets and whether exit from exporting is more likely to be associated with firm-level heterogeneity or more general factors such as trade costs and/or barriers to entry and exit (such as sunk costs). This study presents the first analysis undertaken for a nationally representative group of UK firms on the determinants of exit from exporting, using panel data covering all market-based sectors of the UK during 1997-2003. Our findings suggest that the probability of a firm ceasing to export is directly influenced by its productivity and other attributes associated with firm-level productivity differences (such as size and foreign ownership). Micro-finance factors, such as profitability and the ability to finance through long-term debt, play an additional role. Lastly, sectoral differences (e.g. industrial concentration) also help explain the firm's exit decision, whilst trade costs lead to a higher probability of exiting from selling internationally.

Performance and business relatedness as drivers of exit decision: A study of MNCs from an emerging country

“…Several variables that could threaten the accuracy of our model estimation are controlled in our study. Specifically, a foreign exit decision has frequently been shown to also be influenced by the size of the parent company (PC size) (Delios & Beamish, 2001), measured by the number of the employees in the foreign affiliate; age of the parent company (PC age) (Engel, Procher, & Schmidt, 2013), measured by the years since the time of establishment to 2011; size of the foreign affiliate (FA size) (Dhanaraj & Beamish, 2004), measured by the number of the employees in the foreign affiliate; age of the foreign affiliate (FA age) (Dai et al, 2013), measured by the years since the time of entry to the time of exiting from the foreign market (or to 2011 if it was still in operation); product life cycle stage (PLC stage) (Agarwal, Sarkar, & Echambadi, 2002), taking the value of 1 if the product is at the introductory stage and 0 otherwise; PC ownership (Colombo & Delmastro, 2000), coded as 1 if the PC is a state-owned enterprise and 0 otherwise; PC international experience (Shaver et al, 1997), measured as the years of operation in international market; FA Industry (Bercovitz and Mitchell 2007), consists of six categories: (1) high-tech manufacturing, (2) low-tech manufacturing, (3) construction, (4) agriculture, forestry, husbandry & fishery, (5) mining & quarrying, and (6) other services; FA establishment method (Li, 1995), a dummy variable with the value of 1 if the FA is established via Greenfield and 0 otherwise; FA ownership, coded as 1 if the PC is wholly owned and 0 otherwise; political freedom in the foreign market, measured as the ratings of political rights in a country from the Freedom of the World Survey (Soule et al, 2014); economic stage of the foreign market, a dummy variable taking the value of 1 if the foreign country is classified as a developed country by the World Bank and 0 otherwise (Geroski, Mata, & Portugal, 2010); cultural distance (Pattnaik & Lee, 2014), measured as the Euclidean distance index based on the six dimensions of Hofstede, Hofstede, and Minkov (2010); market turbulence in the foreign market (Bergh & Lawless, 1998), measured by the four items from Sethi and Iqbal (2008); and organization slack of the PC (Harris & Li, 2011), measured by the four items used in J. Tan and Peng (2003)…”

Exit from Exporting: Does Being a Two-way Trader Matter?

“…Creusen and Lejour (2011) study the probability of quitting an export market for Dutch firms, finding that it is lower for large firms, the firm's productivity does not have a significant impact, and market traits like distance and import tariffs increase the probability of exiting. Harris and Li (2011) examine exit from exporting in UK manufacturing firms, adding firmlevel heterogeneity to other more general factors such as industrial concentration and trade costs, for which they also obtain a significant effect. Albornoz et al…”

Should I Stay or Should I Go? Firm Heterogeneity in the Post‐crisis Period

“…Harris and Li (2011) find stoppers having greater mean productivity and capital intensity in a sample of UK firms covering all market-based sectors. © 2018 The University of Manchester and John Wiley & Sons Ltd…”

“…Evidence on firm survival argues that exporting makes firms more resilient, increasing the probability of firm survival (Dunne and Hughes, 1994;Wagner, 1994;Bridges and Guariglia, 2008;Fugazza and McLaren, 2014). However, fewer studies have looked at the factors that affect whether a firm stays in overseas markets (Wagner, 2008;Ilmakunnas and Nurmi, 2010;Harris and Li, 2011). This paper aims to improve our understanding of the factors that affect export-market entry and exit.…”