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The Bright Side of Foreign Competition: Import Penetration and Default Risk

Nader Atawnah et al.

Critical Finance Review2025https://doi.org/10.1561/104.00000158article
AJG 1ABDC A*
Weight
0.37

Abstract

We examine the effect that foreign competition has on firms’ default risk and document a strong and robust negative association. Utilizing a large sample of public U.S. manufacturing firms and industry-level import penetration data, we find that an increase in import penetration from the 25th to the 75th percentile leads to a reduction in corporate default risk of roughly 3%. These results hold after accounting for potential endogeneity concerns. Additional tests reveal that the reduction in default risk is attributable to import penetration reducing idiosyncratic decision making within firms, as well as inducing safer yet more myopic investments. Our results contrast with those of Platt (2020), who shows that the competitive environment increases the cost of debt. We argue that model selection is crucial in studies on the causal effects of competition, with more restrictive models to be preferred due to significant endogeneity concerns.

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https://doi.org/https://doi.org/10.1561/104.00000158

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@article{nader2025,
  title        = {{The Bright Side of Foreign Competition: Import Penetration and Default Risk}},
  author       = {Nader Atawnah et al.},
  journal      = {Critical Finance Review},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1561/104.00000158},
}

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The Bright Side of Foreign Competition: Import Penetration and Default Risk

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Evidence weight

0.37

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.16 × 0.4 = 0.06
M · momentum0.53 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.