Building a Customer Base under Liquidity Constraints Paul Beaumont 1 - - PowerPoint PPT Presentation

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Building a Customer Base under Liquidity Constraints Paul Beaumont 1 - - PowerPoint PPT Presentation

Apr 09, 2024 388 likes •596 views

Building a Customer Base under Liquidity Constraints Paul Beaumont 1 - Cl emence Lenoir 2 - 17th CEPR/JIE School on Applied Industrial Organisation 1 Universit e Paris Dauphine/McGill University (Desautels) 2 CREST - Ecole Polytechnique 1 /

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Building a Customer Base under Liquidity Constraints

Paul Beaumont1 - Cl´ emence Lenoir2

  • 17th CEPR/JIE School on Applied Industrial Organisation

1Universit´

e Paris Dauphine/McGill University (Desautels)

2CREST - Ecole Polytechnique

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Motivation

B2B manufacturing firms invest 8-10% of their sales in their customer base (Gartner 2019) Critical implications for economic efficiency

  • Life-cycle firm growth
  • Foster, Haltiwanger and Syverson (2016); Pozzi and Schivardi (2016); Eslava and Haltiwanger (2019)
  • Competition
  • Syverson (2004); Steinwender (2018)

(This paper) What is the role of financing frictions in demand formation?

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This paper

Experimental setting:

  • Shock: French law that limited payment terms between French firms
  • Outcome: Exports of French firms to EU-based importers
  • 1. Relaxing liquidity constraints spurs export growth
  • 2. Relaxing liquidity constraints allows firms to invest in their customer base
  • 3. Relaxing liquidity constraints allows firms to invest in long-term customer relationships

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This paper

Experimental setting:

  • Shock: French law that limited payment terms between French firms
  • Outcome: Exports of French firms to EU-based importers
  • 1. Relaxing liquidity constraints spurs export growth
  • 2. Relaxing liquidity constraints allows firms to invest in their customer base
  • 3. Relaxing liquidity constraints allows firms to invest in long-term customer relationships

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This paper

Experimental setting:

  • Shock: French law that limited payment terms between French firms
  • Outcome: Exports of French firms to EU-based importers
  • 1. Relaxing liquidity constraints spurs export growth
  • 2. Relaxing liquidity constraints allows firms to invest in their customer base
  • 3. Relaxing liquidity constraints allows firms to invest in long-term customer relationships

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This paper

Experimental setting:

  • Shock: French law that limited payment terms between French firms
  • Outcome: Exports of French firms to EU-based importers
  • 1. Relaxing liquidity constraints spurs export growth
  • 2. Relaxing liquidity constraints allows firms to invest in their customer base
  • 3. Relaxing liquidity constraints allows firms to fund non-price customer acquisition costs

→ Liquidity frictions restrict the set of customers/suppliers with which firms can trade

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Data

Sample period: 2002-2012

⊲ Firm-to-firm exports data

  • Product-level value and quantity shipped between French exporters and EU importers

⊲ Tax return data: Balance sheet + Profit and Loss statements ⊲ Breakdown of sales by 5-digits sector

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The reform

”Loi de Modernisation de l’Economie” (2009)

  • Long payment periods represent a ”financial

burden for SMEs” (EU Commission, 2000) Starting from January 2009, contractual payment terms should not exceed 60 days Benefits: unlocks internal liquidity for firms

60 70 80 90 100 Payment periods (in days) 20 40 60 80 100 Sales percentile (by 5-digits sector) 2007 2009

Payment periods ց by 3 days → 9% increase in cash holdings for the average firm

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The reform

”Loi de Modernisation de l’Economie” (2009)

  • Long payment periods represent a ”financial

burden for SMEs” (EU Commission, 2000) Starting from January 2009, contractual payment terms should not exceed 60 days Costs: Limits non-price competition Potential threat to identification

→ Focus on international transactions

  • The cap only applies to domestic transactions

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Treatment intensity approach

Treatment intensity: exposure to the reform varies with the sectoral composition of sales

  • 2007 payment periods:
  • Carpets and rugs: 65 days
  • Industrial textiles: 82 days

Comparison of exports of wall coverings in Germany in 2009 (product-country-year FE) between

  • Firm A: sells 70% of carpets and 30% industrial textiles
  • Firm B: sells 30% of carpets and 70% industrial textiles

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Cash holdings

  • .005

.005 .01 Cash holdings over total assets 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Year

Transfer from accounts receivable to cash holdings

→ Short-term assets of the firm

more liquid

Yf,t = κf + λt +

2012

  • i=2004

µi · 1 (Distance to 60-day rulef,07 P50) × 1(t = i) + ρ · Wf,t + νf,t

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Export growth

  • .05

.05 .1 Export growth 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Year

1 S.D. in exposure to the reform

  • ∼ 20 days of distance to the

threshold

→ 18% increase in product-level

export growth

Yf,c,p,t = κf + λc,p,t +

2012

  • i=2004

µi · 1 (Distance to 60-day rulef,07 P50) × 1(t = i) + ρ · Wf,t + νf,c,p,t

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Customer acquisition or larger sales with existing customers?

∆Exports

= Distance to 60-day rulef,t 0.012∗∗ (0.006) Observations 4,938,990 Firm FE Yes Country-Product-Year FE Yes Controls Yes 9 / 10

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Customer acquisition or larger sales with existing customers?

∆Exports

=

∆Stable customers

+

∆Customer base

Distance to 60-day rulef,t 0.012∗∗

  • 0.001

0.012∗∗ (0.006) (0.001) (0.005) Observations 4,938,990 4,938,990 4,938,990 Firm FE Yes Yes Yes Country-Product-Year FE Yes Yes Yes Controls Yes Yes Yes

Not consistent with firm-level decrease in production cost or increase in product quality

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Customer acquisition costs

The effects of the reform should be larger for...

  • 1. Products more relationship-specific
  • Products with longer average trade relationships
  • 2. Customers that are more difficult to reach
  • Customers that had never traded with a French exporter before

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Customer acquisition costs

The effects of the reform should be larger for...

Products more relationship-specific

  • Products with longer average trade relationships

Customers that are more difficult to reach

  • Customers that had never traded with a French exporter before

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Customer acquisition costs

The effects of the reform should be larger for...

Products more relationship-specific

  • Products with longer average trade relationships

Customers that are more difficult to reach

  • Customers that had never traded with a French exporter before

→ Liquidity constraints ր exposure to risk of losing customers

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Thanks!

Website: paulhbeaumont.github.io Contact: paul.beaumont@dauphine.eu

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Bibliography

Eslava, Marcela, and John Haltiwanger. 2019. “The Life-Cycle Growth of Plants: The Role of Productivity, Demand and Wedges.” NBER Working Paper. Foster, Lucia, John Haltiwanger, and Chad Syverson. 2016. “The Slow Growth Of New Plants: Learning About Demand?” Economica, 83(329): 91–129. Pozzi, Andrea, and Fabiano Schivardi. 2016. “Demand or productivity: What determines firm growth?” The RAND Journal of Economics, 47(3): 608–630. Steinwender, Claudia. 2018. “Real Effects Of Information Frictions: When The States And The Kingdom Became United.” American Economic Review, 108(3): 657–96. Syverson, Chad. 2004. “Market Structure And Productivity: A Concrete Example.” Journal of Political Economy, 112(6): 1181–1222.

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