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Journal Article
Flexibility Costs of Debt: Danish Exporters During the Cartoon Crisis
Journal of Financial Economics
Author(s)
We study how firms respond to an unexpected demand shock, exploiting the 2006 boycott
of Danish products after publication of Muhammad caricatures. On average, affected firms
lose the majority of their exports to Muslim countries and experience a significant decrease
in total sales. However, firms with low financial leverage redirect sales to new and existing
product-destination markets in non-Muslim countries, which allows them to fully offset their
losses. In contrast, high-leverage firms do not enter new markets and instead actively downsize. Our results highlight the importance of financial flexibility in times of crisis, consistent with declarations of practitioners.
Date Published:
2023
Citations:
Friedrich, Benjamin, Michal Zator. 2023. Flexibility Costs of Debt: Danish Exporters During the Cartoon Crisis. Journal of Financial Economics. (4)91-117.