Firms leverage and export quality:evidence from France

Is corporate financial structure a determinant of non-price competitiveness in export mar- kets? In this paper we provide a positive answer to this question by finding that among illiquid exporters leverage is negatively correlated with the quality of their exported goods.This result is obtained on a sample including over 120,000 export flows of 6,229 French firms exporting within six HS6 products categories. The main methodological contribu- tion of our study is the use of a flow-level measure of export quality obtained from the estimation of a structural model of demand Berry, 1994; this estimator enhance the validity of our approach by avoiding the drawbacks of proxying for quality using export prices, as it is common practice in the trade literature.We argue that the negative impact of leverage on quality is consistent with theoretical contributions in the financial literature predicting a negative impact of debt financing on firms? incentive to undertake quality upgrading investments.