Advertisement

Small Business Economics

, Volume 44, Issue 4, pp 905–924 | Cite as

Local financial development and the trade credit policy of Italian SMEs

  • Marc Deloof
  • Maurizio La Rocca
Article

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.

Keywords

Trade credit Local financial development SME finance Cooperative banks Global financial crisis 

JEL Classifications

G21 G32 L26 P13 R12 

Notes

Acknowledgments

The authors would like to thank Alfio Cariola, Hans Degryse, Serena Frazzoni, Marc Jegers, Heidi Vander Bauwhede, Yixia Wang, two anonymous reviewers, and participants at the Corporate Finance Day in Ghent, the Workshop on SME Finance in Strasbourg, France, and the AIDEA conference in Lecce, Italy, for their helpful comments and suggestions.

References

  1. Agostino, M., & Trivieri, F. (2014). Does trade credit play a signalling role? Some evidence from SMEs microdata. Small Business Economics, 42, 131–151. doi: 10.1007/s11187-013-9478-8.CrossRefGoogle Scholar
  2. Alessandrini, P., Presbitero, A. F., & Zazzaro, A. (2009). Banks, distances and firms’ financing constraints. Review of Finance, 13, 261–307. doi: 10.1093/rof/rfn010.CrossRefGoogle Scholar
  3. 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
  4. Angelini, P., Di Salvo, R., & Ferri, G. (1998). Availability and cost of credit for small businesses: Customer relationships and credit cooperatives. Journal of Banking & Finance, 22, 925–954. doi: 10.1016/S0378-4266(98)00008-9.CrossRefGoogle Scholar
  5. Becattini, G. (1992). The Marshallian industrial district as a socioeconomic notion. In F. Pyke, G. Becattini, & W. Sengenbenger (Eds.), Industrial districts and inter-firm co-operation in Italy. Geneva: International Institute for Labour Studies.Google Scholar
  6. Beck, T., & Demirgüç-Kunt, A. (2009). Financial institutions and markets across countries and over timedata and analysis. Working paper, World Bank. http://hdl.handle.net/10986/4154.
  7. Benfratello, L., Schiantarelli, F., & Sembenelli, A. (2008). Banks and innovation: Microeconometric evidence on Italian firms. Journal of Financial Economics, 90, 197–217. doi: 10.1016/j.jfineco.2008.01.001.CrossRefGoogle Scholar
  8. Berger, A. N., Goulding, W., & Rice, T. (2014). Do small business still prefer community banks? Journal of Banking & Finance, 44, 264–278. doi: 10.1016/j.jbankfin.2014.03.016.CrossRefGoogle Scholar
  9. Berger, A. N., Miller, N. H., Petersen, M. A., Rajan, R. G., & Stein, J. C. (2005). Does function follow organizational form? Evidence from the lending practices of large and small banks. Journal of Financial Economics, 76, 237–269. doi: 10.1016/j.jfineco.2004.06.003.CrossRefGoogle Scholar
  10. Biais, B., & Gollier, C. (1997). Trade credit and credit rationing. Review of Financial Studies, 10, 903–937. doi: 10.1093/rfs/10.4.903.CrossRefGoogle Scholar
  11. Bolton, P., Freixas, X., Gambacorta, L., & Mistrulli, P. E. (2013). Relationship and transaction lending in a crisis. Working paper, National Bureau of Economic Research. doi:  10.3386/w19467.
  12. Bonaccorsi di Patti, E. (2009). Weak institutions and credit availability: The impact of crime on bank loans. Working paper, Bank of Italy.Google Scholar
  13. Bonaccorsi di Patti, E., & Gobbi, G. (2001). The changing structure of local credit markets: Are small business special? Journal of Banking & Finance, 25, 2209–2237. doi: 10.1016/S0378-4266(01)00191-1.CrossRefGoogle Scholar
  14. Burkart, M., & Ellingsen, T. (2004) In-kind finance: A theory of trade credit. American Economic Review, 94, 569–590. doi: 10.1257/0002828041464579.
  15. Carbó-Valverde, S., Rodríguez-Fernández, F., & Udell, G. F. (2013). Trade credit, the financial crisis, and SME access to finance. Working paper, FUNCAS.Google Scholar
  16. Choi, W. G., & Kim, Y. (2005). Trade credit and the effect of macro-financial shocks: Evidence from US panel data. Journal of Financial and Quantitative Analysis, 40, 897–925. doi: 10.1017/S0022109000002027.
  17. Cull, R., Xu, L. C., & Zhu, T. (2009). Formal finance and trade credit during China’s transition. Journal of Financial Intermediation, 18, 173–192. doi: 10.1016/j.jfi.2008.08.004.CrossRefGoogle Scholar
  18. Cuñat, V. (2007). Trade credit: Suppliers as debt collectors and insurance providers. Review of Financial Studies, 20, 491–527. doi: 10.1093/rfs/hhl015.CrossRefGoogle Scholar
  19. De Arcangelis, G., & Ferri, G. (2005). The specialization of the districts: From typical final goods to machinery for making them? Working paper, Bank of Italy.Google Scholar
  20. Degryse, H. A., & Ongena, S. (2005). Distance, lending relationships and competition. Journal of Finance, 60, 231–266. doi: 10.1111/j.1540-6261.2005.00729.x.CrossRefGoogle Scholar
  21. Dei Ottati, G. (2003). Trust, interlinking transactions and credit in the industrial district. In: G. Becattini, M. Bellandi, G. Dei Ottati, & S. Sfrozi (Eds.), From industrial districts to local development: An itinerary of research (pp. 108–130). Cheltenham: Edgar Elgar.Google Scholar
  22. Deloof, M., & Jegers, M. (1996). Trade credit, product quality, and intragroup sales: Some European evidence. Financial Management, 25, 33–43. doi: 10.2307/3665806.CrossRefGoogle Scholar
  23. Demirgüç-Kunt, A., & Maksimovic, V. (2001). Firms as financial intermediaries: Evidence from trade credit data. Working paper, World Bank. http://hdl.handle.net/10986/19511.
  24. Di Giacinto, V., Gomellini, M., Micucci, G., & Pagnini, M. (2012). Mapping local productivity advantages in Italy: Industrial districts, cities or both? Working paper, Bank of Italy.Google Scholar
  25. Ferri, G., & Messori, M. (2000). Bank-firm relationships and allocative efficiency in Northeastern and Central Italy and in the South. Journal of Banking & Finance, 24, 1067–1095. doi: 10.1016/S0378-4266(99)00118-1.CrossRefGoogle Scholar
  26. Fisman, R., & Love, I. (2003). Trade credit, financial intermediary development, and industry growth. Journal of Finance, 58, 353–374. doi: 10.1111/1540-6261.00527.CrossRefGoogle Scholar
  27. Gagliardi, F. (2009). Financial development and the growth of cooperative firms. Small Business Economics, 32, 439–464. doi: 10.1007/s11187-007-9080-z.CrossRefGoogle Scholar
  28. Garcia-Appendini, E., & Montoriol-Garriga, J. (2013). Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. Journal of Financial Economics, 109, 272–291. doi: 10.1016/j.jfineco.2013.02.010.CrossRefGoogle Scholar
  29. Garcia-Teruel, P. J., & Martinez-Solano, P. (2010). A dynamic perspective on the determinants of accounts payable. Review of Quantitative Finance and Accounting, 34, 439–457. doi: 10.1007/s11156-009-0124-0.CrossRefGoogle Scholar
  30. Ge, Y., & Qiu, J. (2007). Financial development, bank discrimination and trade credit. Journal of Banking & Finance, 31, 513–530. doi: 10.1016/j.jbankfin.2006.07.009.CrossRefGoogle Scholar
  31. Giannetti, M., Burkart, M., & Ellingsen, T. (2011). What you sell is what you lend? Explaining trade credit contracts. Review of Financial Studies, 24, 1261–1298. doi: 10.1093/rfs/hhn096.CrossRefGoogle Scholar
  32. Guiso, L., Sapienza, P., & Zingales, L. (2004a). Does local financial development matter? Quarterly Journal of Economics, 119, 929–969. doi: 10.1162/0033553041502162.CrossRefGoogle Scholar
  33. Guiso, L., Sapienza, P., & Zingales, L. (2004b). The role of social capital in financial development. American Economic Review, 94, 526–556. doi: 10.1257/0002828041464498.
  34. Hernández-Cánovas, G., & Martínez-Solano, P. (2007). Effect of the number of banking relationships on credit availability: Evidence from panel data of Spanish small firms. Small Business Economics, 28, 37–53. doi: 10.1007/s11187-005-6704-z.CrossRefGoogle Scholar
  35. Howorth, C., & Moro, A. (2006). Trust within entrepreneur bank relationships: Insights from Italy. Entrepreneurship Theory and Practice, 30, 495–517. doi: 10.1111/j.1540-6520.2006.00132.x.CrossRefGoogle Scholar
  36. La Rocca, M., La Rocca, T., & Cariola, A. (2010). The influence of local institutional differences on the capital structure of SMEs: Evidence from Italy. International Small Business Journal, 28, 234–257. doi: 10.1177/0266242609360614.CrossRefGoogle Scholar
  37. Love, I., Preve, L. A., & Sarria-Allende, V. (2007). Trade credit and bank credit: Evidence from recent financial crises. Journal of Financial Economics, 83, 453–469. doi: 10.1016/j.jfineco.2005.11.002.CrossRefGoogle Scholar
  38. Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2014). Trade credit and SME profitability. Small Business Economics, 42, 561–577. doi: 10.1007/s11187-013-9491-y.CrossRefGoogle Scholar
  39. McMillan, J., & Woodruff, C. (1999). Interfirm relationships and informal credit in Vietnam. Quarterly Journal of Economics, 114, 1285–1320. doi: 10.1162/003355399556278.CrossRefGoogle Scholar
  40. Morris, J. R. (1976). On corporate debt maturity strategies. Journal of Finance, 31, 29–37. doi: 10.1111/j.1540-6261.1976.tb03193.x.CrossRefGoogle Scholar
  41. Niskanen, J., & Niskanen, M. (2006). The determinants of corporate trade credit policies in a bank-dominated financial environment: The case of Finnish small firms. European Financial Management, 12, 81–102. doi: 10.1111/j.1354-7798.2006.00311.x.CrossRefGoogle Scholar
  42. Ogawa, K., Sterken, E., & Tokutsu, I. (2013). The trade credit channel revisited: Evidence from micro data of Japanese small firms. Small Business Economics, 40, 101–118. doi: 10.1007/s11187-011-9344-5.CrossRefGoogle Scholar
  43. Panetta, F., & Signoretti, F. M. (2010). Domanda e offerta di credito in Italia durante la crisi finanziaria [demand and supply of credit in Italy during the financial crisis]. Working paper, Bank of Italy.Google Scholar
  44. Petersen, M. A., & Rajan, R. G. (1994). The benefits of lending relationships: Evidence from small business data. Journal of Finance, 49, 3–37. doi: 10.1111/j.1540-6261.1994.tb04418.x.CrossRefGoogle Scholar
  45. Petersen, M., & Rajan, R. (1995). The effect of credit market competition on lending relationships. Quarterly Journal of Economics, 110, 407–443. doi: 10.2307/2118445.CrossRefGoogle Scholar
  46. Petersen, M., & Rajan, R. (1997). Trade credit: Theories and evidence. Review of Financial Studies, 10, 661–691. doi: 10.1093/rfs/10.3.661.CrossRefGoogle Scholar
  47. Presbitero, A. F., Udell, G. F., & Zazzaro, A. (2014). The home bias and the credit crunch: A regional perspective. Journal of Money, Credit and Banking, 46, 53–85. doi: 10.1111/jmcb.12078.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.University of Antwerp and Antwerp Management SchoolAntwerpBelgium
  2. 2.University of CalabriaRendeItaly

Personalised recommendations