Access to finance, exporting and a non-monotonic firm expansion

In this paper we analyse the role financial constraints play in firm expansion in both domestic and export markets. We use data on Slovenian manufacturing firms that were active between 2001 and 2012. In contrast to existing studies, we use generalised propensity score and continuous matching techniques to estimate the effects of differences in access to bank financing. We show that the response of sales to measure of access to external funds differs considerably between firms of different size. The largest effect of additional external funds is observed for small firms. Moreover, the relationship between debt and domestic or foreign sales is non-monotonic, displaying a pronounced inverse U-shape. Thus, an increase in debt financing may cause a decrease in exporting and domestic sales for some levels of indebtedness, while stimulating it for other levels.