Heterogeneous firms, financial constraints and export behaviour: A firm-level investigation for China

We study the impact of access to finance on exports using Chinese firm-level data. We distinguish two modes of external finance, namely bank loans and issuing stocks to shareholders. We not only consider the impact either of these has individually on export behaviour, but also their interaction. We build the two external sources, as well as internal finance, into a heterogeneous firm-type model, which allows us to investigate the relationship between financial constraints and firms' exports. We examine the model's predictions empirically using a comprehensive longitudinal firm-level data set from China. Our empirical results are consistent with the theoretical predictions. Firms who have more interest expenditure or can issue stocks to their shareholders have higher propensity to export and export more. Moreover, the more financial options a firm has, the better a firm performs in terms of export volume and export propensity.