Financial Reliability and Firms' Export Activity

This paper assesses the importance of firms' financial resources that are necessary to overcome sunk entry costs associated with export. We propose a new methodology to identify \textit{a priori} constrained firms, exploiting a rich data-set on Italian firms' assets and liabilities. We provide evidence that the entry probability is affected by the level of cash stock for the constrained firms: an increase of 10\% in the cash stock of constrained firms raises by an additional 0.17\% the entry probability of rationed firms, compared to unconstrained ones. Additionally, we find evidence that the liquidity is mainly used for investments in the development of new products for foreign markets. We do not find evidence that entry in the export market improves the firm's financial health, while \textit{ex-ante} new entrants are relatively more leveraged.