Early stage SME bankruptcy: does the local banking market matter?
- 105 Downloads
This paper investigates the role of local context, with regard to the effect of local financial development and banking concentration, on a firm’s probability of bankruptcy at the post-creation stage. Our empirical setting is based on the logit multilevel model that better allows the treatment of data referring to different levels of aggregation (firm and local variables) applied to companies located in Italy. We find that a higher level of financial development in a province decreases the likelihood of corporate bankruptcy. This result is robust considering a 2SLS regression in which we use instruments for the local financial development and for the concentration of bank branches. In addition, our estimations suggest that the effect of local financial development and bank concentration is shaped by size. Local financial development is particularly significant for small firms, which traditionally suffer from great difficulty in accessing credit, whereas local banking concentration reduces the probability of bankruptcy for medium-sized firms.
KeywordsProbability of bankruptcy SMEs Multilevel model Local banking structure
JEL codesC26 C30 M13 R11 L26
We are very thankful to Maurizio La Rocca who provided expertise that greatly assisted the research. We are also grateful to two anonymous referee of the research center EconomiX for their suggestions. We are grateful to Marcus Dejardin, Claudia Ghisetti and all the participants of the KID 2017 Thematic School InSHS CNRS for their precious comments on an earlier version of his paper.
- Albertazzi U, Marchetti DJ (2010) Credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman. Working Paper Bank of Italy, Economic Research and International Relations, Serie Temi di discussione, n° 756.Google Scholar
- Alessandrini, P., & Zazzaro, A. (1999). A “possibilist” approach to local financial systems and regional development: the Italian experience. In R. Martin (Ed.), Money and the space economy (pp. 71–92). New York: Wiley.Google Scholar
- Andriani L (2015) Institutional conformity and regional credit market failures: evidence from the Italian industrial districts. Working Papers in Management, Birkbeck, Department of Management, BWPMA 1503, November.Google Scholar
- Arnaudo D, Micucci G, Rigon M and Rossi P (2016) Should I stay or should I go? Firms’ mobility across banks in the aftermath of financial turmoil, Banca d’Italia Working Paper, n° 1086.Google Scholar
- Bonaccorsi di Patti, E. (2009). Weak institutions and credit availability: the impact of crime on bank loans (p. 52). Banca d’Italia: Questioni di economia e finanza-Occasional Papers.Google Scholar
- Bonnet, J., Cieply, S., & Dejardin, M. (2005). Financial constraints on new firms: looking for regional disparities. Brussels Economic Review, 48(3), 217–245.Google Scholar
- Bonnet J., & Le Pape N. (2012) Entrepreneurship motives, entrepreneurial orientation and duration of new French firms. In A. Rahim (Ed.), Social Intelligence, Leadership, and Problem Solving (pp. 93–106). Transaction Publishers. Available at: https://halshs.archives-ouvertes.fr/halshs-00771118.
- Cetorelli, N., & Strahan, P. E. (2006). Finance as a barrier to entry: bank competition and industry structure in local U.S. markets. Journal of Finance, American Finance Association, 61(1), 437–461.Google Scholar
- Deloof M., La Rocca M., & Vanacker T. (2016) Local banking development and the use of debt financing by start-up firms. Working Paper University of Antwerp. Available at https://www.world-finance-conference.com/papers_wfc2/624.pdf
- Garsaa, A., & Levratto, N. (2016). Does the employment growth rate depend on the local context? An analysis of French establishments over the 2004-2010 period. Revue d'Economie Industrielle, 153(1), 47–89.Google Scholar
- Hanssens J., Deloof M., Vanacker T. (2015). Underexplored issues in entrepreneurial finance. In D.B. Audretch, C.S. Hayter, A.N. Link (Eds.), Concise guide to entrepreneurship, technology, and innovation pp. (219–223). Chetelham: Edward Elgar Publishing.Google Scholar
- King, R. G., & Levine, R. (1993a). Financial intermediation and economic development. In C. Mayer & X. Vives (Eds.), Financial intermediation in the construction of Europe (pp. 156–189). London: Centre for Economic Policy Research.Google Scholar
- Miller S.M., Hoffer A., Wille D. (2016). Small-business financing after the financial crisis: lessons from the literature. Mercatus Working Paper, Mercatus Center at George Mason University, Arlington.Google Scholar
- Rajan, R. G., & Zingales, L. (1998). Financial dependence and growth. American Economic Review, 88(3), 559–586.Google Scholar
- Schumpeter, J. A. (1961). The theory of economic development. An inquiry into profits, capital credit, interest, and the business cycle. New York: Oxford University Press.Google Scholar
- Snijders, T. A. B., & Bosker, R. J. (1999). Multilevel analysis. London: Sage.Google Scholar
- Thornhill S., Amit R. (2003). Comprendre l'échec: mortalité organisationnelle et approche fondée sur les ressources. Document de recherche. Direction des études analytiques, Statistique Canada 11F0019–202.Google Scholar
- Wiens J., Jackson C. (2015). The importance of young firms for economic growth, 13th of September, The Kauffman Foundation.Google Scholar