How Do Firms Respond to Demand Shocks? Evidence from the European Sovereign Debt Crisis

41 Pages Posted: 27 Dec 2019 Last revised: 16 Mar 2020

See all articles by Manuel Adelino

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Paulo Fagandini

NOVA School of Business and Economics; ISCAL - Lisbon Accounting and Business School

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Francisco Queiro

Nova School of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 18, 2019

Abstract

We examine how firms respond to domestic demand shocks using the large and unanticipated shock to government spending in European periphery countries during the 2010-2011 sovereign debt crisis. We find that firms with higher ex-ante exposure to government procurement contracts significantly increase their exports after the shock or exit. Older and larger firms are better able to substitute domestic sales with entry into export markets than younger and smaller firms. Firms with high-skill workers, high productivity and more educated managers are also more likely to start exporting. Our results suggest that mature and high-quality firms drive the response of tradeable industries to domestic demand shocks.

Keywords: Fiscal austerity, Exports, Investment opportunities, Financial crises

JEL Classification: F10, G01, G30, H57, H60

Suggested Citation

Adelino, Manuel and Fagandini, Paulo and Fagandini, Paulo and Ferreira, Miguel Almeida and Queiro, Francisco, How Do Firms Respond to Demand Shocks? Evidence from the European Sovereign Debt Crisis (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3499530 or http://dx.doi.org/10.2139/ssrn.3499530

Manuel Adelino

Duke University ( email )

Duke Innovation & Entrepreneurship Initiative ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Paulo Fagandini

NOVA School of Business and Economics ( email )

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Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

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European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Francisco Queiro

Nova School of Business and Economics ( email )

Lisbon, 1099-085
Portugal

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