The differentiated impacts of external and internal financing on export: the firm-level evidence

Purpose The authors provide firm-level evidence that external financing affects international trade in a way different from internal financing. Design/methodology/approach The authors separate new entrants from incumbent exporters and investigate the roles of external and internal financing in export market participation and export quantity. Findings The authors find that external financing is of particular importance, as well as internal financing, in helping a firm become a new exporter. By contrast, external financing, unlike internal financing, is not significantly important for an incumbent exporter to stay in the international market. Regarding export quantity, a firm's internal financing is positively associated with more export quantity, whereas external financing is not. Originality/value The authors' findings are consistent with the existence of significant fixed cost for entering the export market and external financing is particularly needed to cover such cost. Meanwhile, the financial need for maintaining the export status is much less and can be satisfied via internal financing.