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Institutional Conformity and Regional Credit Market Failures: Evidence from the Italian Industrial Districts

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  • Luca Andriani

    (Department of Management, Birkbeck College University of London)

Abstract

Institutional conformity might help explain regional credit market failures in Italy in terms of insolvency rate. A credit relation is subject to a certain degree of uncertainty about the credible commitment of the parties to fulfil the contractual obligations. We argue that conformity to informal institutions of reciprocal cooperation and trust can reduce this degree of uncertainty and, hence, contract breaches. We support our argument by conducting an empirical investigation where the regional density of industrial districts is used as indicator of institutional conformity. We find lower insolvency rate in regions with higher institutional conformity. Additionally, we find higher conformity to informal institutions in regions where the punishment system reacts quicker to non-compliant behaviours, suggesting a complementary relationship between conformity to informal institutions and lower cost of punishment. One of the advantages of this indicator consists in the possibility of addressing “Ostrom-type” policy recommendations to reduce regional credit market failures.

Suggested Citation

  • Luca Andriani, 2015. "Institutional Conformity and Regional Credit Market Failures: Evidence from the Italian Industrial Districts," Management Working Papers 11, Birkbeck Department of Management, revised Nov 2015.
    • Handle: RePEc:img:manwps:11
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    References listed on IDEAS

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    Cited by:

    1. Giuseppe Arcuri & Nadine Levratto, 2017. "New firms’ bankruptcy: does local banking market matter?," Working Papers hal-04141638, HAL.
    2. Giuseppe Arcuri & Nadine Levratto, 2017. "New firms’ bankruptcy: does local banking market matter?," EconomiX Working Papers 2017-31, University of Paris Nanterre, EconomiX.
    3. Giuseppe Arcuri & Nadine Levratto, 2020. "Early stage SME bankruptcy: does the local banking market matter?," Small Business Economics, Springer, vol. 54(2), pages 421-436, February.

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