Financing Benefit from Exporting : An Indirect Identification Approach

The signaling effect, sales diversification, and diversification of investment funding sources are the three suggested mechanisms through which exporting might alleviate the financial constraints on a firm. Proposing an indirect identification strategy with application to Chinese private-owned enterprises (POEs), we first time examine whether and how firms obtain such financing benefit from exporting. We find that although exporting can alleviate the financial constraints, it does so mainly through the mechanism of sales diversification. This finding implies that Chinese POEs can obtain a financing benefit from exporting by improving the cash flow stability, but not by improving the financing status at neither domestic nor foreign capital market