Local financial development and the trade credit policy of Italian SMEs


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.

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Fig. 1


  1. 1.

    Source: Bank for the Accounts of Companies Harmonised, available at http://www.bachesd.banque-france.fr.

  2. 2.

    For example, Howorth and Moro (2006) find that local entrepreneurs in Northern Italy choose local banks because their own suppliers are happy with the bank manager and local banks obtain information about their clients from other customers.

  3. 3.

    We scale our trade credit variables by total assets rather than by sales or cost of goods sold, and we investigate the role of trade credit as a financing tool. To verify that the scaling choice does not affect our conclusions, we also scale receivables by sales and payables by the cost of goods sold. The results for these alternative measures of trade credit are discussed in Sect. 4.5.

  4. 4.

    To confirm that the measurement of local banking development does not affect our conclusions, we use alternative measures of local banking development. The results for these other measures are discussed in Sect. 4.5.

  5. 5.

    We find similar results if we use total crime rates.

  6. 6.

    We employ Mitchell Petersen’s Stata routine to cluster standard errors by two dimensions (see http://www.kellogg.northwestern.edu/faculty/petersen/htm/papers/se/se_programming.htm).

  7. 7.

    See, for example, the Atradius Payment Practices Barometer, available at http://global.atradius.com/paymentpractice/list/paymentpractices.html.

  8. 8.

    Data on provincial banking development in 1936 were kindly provided by Luigi Guiso.

  9. 9.

    The 20 regions of Italy are the first-level administrative divisions of the state. Since data on provincial populations in 1936 are unavailable, this measure cannot be calculated at the provincial level. Similarly, measures based on GDP cannot be obtained because local GDP data in 1936 are not available.

  10. 10.

    The years 2008 and 2009 are not included because ISTAT provides data on bankruptcies at the province level only until 2007.

  11. 11.

    The results in Table 4 are based on fewer observations than the previous results because there were fewer provinces in 1936 than there are today; observations for provinces that did not yet exist in 1936 are left out of the sample.

  12. 12.

    When we measure local banking development by deposits over the population, loans over the population, or corporate loans over the GDP, the results are very similar to those reported in the paper.


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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.

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Deloof, M., La Rocca, M. Local financial development and the trade credit policy of Italian SMEs. Small Bus Econ 44, 905–924 (2015). https://doi.org/10.1007/s11187-014-9617-x

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

JEL Classifications

  • G21
  • G32
  • L26
  • P13
  • R12