Effect of financial factors on export oriented firm performance: An explication for manufacturing industry

Abstract

Exports at the firm level improve the financial performance and thereby contribute to economic growth. Exporting activities require additional financing and become a challenge for manufacturing firms, thus affecting managerial financing decisions. This thesis attempts to use panel data of manufacturing firms listed on the Pakistan Stock Exchange for the period of 2013–2019 and contributes to the literature on leverage, export intensity, and firm growth. This thesis collects the annual data from the PSX database and covers 156 manufacturing firms, comprising 117 exporter firms and 39 non-exporter firms. The univariate analysis reveals that exporter firms are highly leveraged, older, and larger relative to non-exporter firms. We examine the impact of leverage on export intensity by using the two-step system GMM method. We find that leverage has a negative relationship with export intensity. It implies that exporter firms with higher leverage have a lower export intensity. Furthermore, we find that board size exhibits a negative relationship to export intensity. On the relationship between export intensity and leverage, we find that export intensity is negatively associated with Pakistani manufacturing firms' leverage, and this is consistent with the pecking order theory that exporting firms depend on internal sources of finance compared to external sources of finance due to asymmetric information problems. By unraveling the impact of export growth on firm growth, we document that export growth exerts a significant and positive impact on firm growth and is in line with the hypothesis of export-ledgrowth. Furthermore, we find that firm growth has a more pronounced positive impact on the return on assets of firms that export to foreign markets. These findings suggest important policy implications for export promotion, specifically for a small-open economy. The results are robust to different sensitivity checks.