Time is Money: Cash-Flow Risk and Export Market Behavior

Do liquidity constraints hinder firms’ entry in new markets? Exploiting an exogenous variation in payment delays triggered by a 2009 French reform, we use a unique combination of administrative data sets to test whether changes in working capital financing affect the propensity to enter new export markets. The effect of the reform on payment delays is isolated using a threshold rule introduced by the law. The estimations strongly support the idea that access to working capital financing plays a key role in the expansion in international markets: a decrease in payment delays by ten days is found to raise cash holdings by 1.4 percentage points and to increase the probability to reach a new foreign market by 0.4 percentage points. By contrast, the evolution of the volume of exports or the probability of exiting an export market do not seem to be affected by the variation of payment delays.