Trade Liberalization, Profitability, and Financial Leverage
Brander, James A.
We investigate whether trade liberalization affects profitability and financial leverage, using Canadian data from the period following implementation of the Canada-U.S. Free Trade Agreement. We find that falling domestic tariffs are associated with declining profits and increasing leverage for import-competing firms, while falling foreign tariffs are associated with increasing profits and decreasing leverage for firms in export-oriented industries. This pattern is consistent with the "pecking order" theory of capital structure.
Business performance and ownership, International trade, Financial statements and performance, Business adaptation and adjustment, Trade patterns
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