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An Analysis of the Effects of the Severance Payment Reform on Credit to Italian SMEs

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Author Info
Riccardo Calcagno () (VU University Amsterdam)
Roman Kraeussl () (VU University Amsterdam)
Chiara Monticone () (University of Torino)

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Abstract

We study the effects of the reform of the system of severance payments (TFR) of Italian employees on the cost and the access to credit for small and medium-size enterprises (SMEs). The most direct consequence of the reform is to reduce in the long run the amount of liquid assets available to Italian firms. We argue that this reform, implemented in July 2007, will reduce the aggregate investment by SMEs in a more than proportional way, since it will restrict the access to credit for some of them (Holmstrom and Tirole, 1997). However, we also predict that the reform will not increase the cost of intermediated finance, coeteris paribus. In order to assess the effects of the reform on the investment of SMEs and on the cost of bank loans, we also estimate the future outflows of TFR funds due to the reform.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-107/2.

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Date of creation: 06 Nov 2008
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Handle: RePEc:dgr:uvatin:20080107

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Related research
Keywords: severance indemnities; moral hazard; credit constraints; SMEs;

Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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  1. Guiso, Luigi, 2003. "Small business finance in Italy," EIB Papers 10/2003, European Investment Bank, Economic and Financial Studies. [Downloadable!]
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  3. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, 06. [Downloadable!] (restricted)
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  5. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  6. Pietro Garibaldi & Lia Pacelli, 2007. "Do Larger Severance Payments Increase Individual Job Duration?," Carlo Alberto Notebooks 39, Collegio Carlo Alberto. [Downloadable!]
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  7. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  8. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March. [Downloadable!] (restricted)
  9. Chiesa, Gabriella, 2001. "Incentive-Based Lending Capacity, Competition and Regulation in Banking," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 28-53, January. [Downloadable!] (restricted)
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  10. Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 663-91, August.
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  11. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 290-303, August. [Downloadable!] (restricted)
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  14. Carolina Fugazza & Federica Teppa, 2005. "An Empirical Assessment of the Italian Severance Payment," CeRP Working Papers 38, Center for Research on Pensions and Welfare Policies, Turin (Italy). [Downloadable!]
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