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Local financial development and the trade credit policy of Italian SMEs

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  • Marc Deloof
  • Maurizio Rocca

Abstract

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. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Marc Deloof & Maurizio Rocca, 2015. "Local financial development and the trade credit policy of Italian SMEs," Small Business Economics, Springer, vol. 44(4), pages 905-924, April.
  • Handle: RePEc:kap:sbusec:v:44:y:2015:i:4:p:905-924
    DOI: 10.1007/s11187-014-9617-x
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    More about this item

    Keywords

    Trade credit; Local financial development; SME finance; Cooperative banks; Global financial crisis; G21; G32; L26; P13; R12;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P13 - Economic Systems - - Capitalist Systems - - - Cooperative Enterprises
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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