The benefits of geographic sales diversification: How exporting facilitates capital investment

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Many strategic investments require firms to make upfront outlays to generate profits at a later date. When firms have limited access to external capital, they have to rely on internally generated funds for these investments. In this case, their strategic investments are constrained by cash flow. I predict that by geographically diversifying sales (i.e., exporting), firms can relax this constraint because exporting signals more stable expected cash flows and firm quality, which can increase external capital providers' willingness to fund investments. Examining a representative sample of Spanish manufacturers from 1990 to 1998, I find support that exporting mitigates investment liquidity constraints allowing firms to make strategic investments they would not otherwise be able to make. This highlights how diversification can be a strategy to create and maintain competitive advantage.

Original languageEnglish (US)
Pages (from-to)1046-1060
Number of pages15
JournalStrategic Management Journal
Issue number10
StatePublished - Oct 2011


  • capital investment
  • corporate strategy
  • diversification
  • exporting
  • international strategy


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