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Early stage SME's bankruptcy : does local banking market matter?

Author

Listed:
  • Giuseppe Arcuri

  • Nadine Levratto

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

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. https://doi.org/10.1007/s11187-018-0042-4

Suggested Citation

  • Giuseppe Arcuri & Nadine Levratto, 2018. "Early stage SME's bankruptcy : does local banking market matter?," Post-Print hal-01742625, HAL.
    • Handle: RePEc:hal:journl:hal-01742625
    DOI: 10.1007/s11187-018-0042-4
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