Local financial development and the trade credit policy of Italian SMEs
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We investigate the relation between local financial development and trade credit in an integrated financial market. Our results suggest that trade credit complements the formal finance of small- and medium-sized enterprises (SMEs) at the local level. Provincial banking development in Italy increases the provision of trade credit by SMEs and stimulates the redistribution of loans via trade credit. However, cooperative banking reduces the use of trade credit at the local level. Evidence shows that lower levels of provincial banking development are linked with a stronger decline in trade credit at the start of the global financial crisis. We also find that SMEs in provinces with industrial districts use more trade credit. Our results confirm that local differences in banking development and the trade credit policy of SMEs within countries matter, adding to earlier findings that the provision of trade credit is complementary to the development of financial institutions at the country level.
KeywordsTrade credit Local financial development SME finance Cooperative banks Global financial crisis
JEL ClassificationsG21 G32 L26 P13 R12
The authors would like to thank Alfio Cariola, Hans Degryse, Serena Frazzoni, Marc Jegers, Heidi Vander Bauwhede, Yixia Wang, two anonymous reviewers, and participants at the Corporate Finance Day in Ghent, the Workshop on SME Finance in Strasbourg, France, and the AIDEA conference in Lecce, Italy, for their helpful comments and suggestions.
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