Skip to main content

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.

This is a preview of subscription content, access via your institution.

Fig. 1


  1. 1.

    Source: Bank for the Accounts of Companies Harmonised, available at

  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

  7. 7.

    See, for example, the Atradius Payment Practices Barometer, available at

  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.


  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

  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.

    Article  Google 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.

    Article  Google Scholar 

  15. Carbó-Valverde, S., Rodríguez-Fernández, F., & Udell, G. F. (2013). Trade credit, the financial crisis, and SME access to finance. Working paper, FUNCAS.

  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.

    Article  Google Scholar 

  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.

    Article  Google 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.

    Article  Google 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.

  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.

    Article  Google 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.

  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.

    Article  Google Scholar 

  23. Demirgüç-Kunt, A., & Maksimovic, V. (2001). Firms as financial intermediaries: Evidence from trade credit data. Working paper, World Bank.

  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.

  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

  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.

    Article  Google 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.

    Article  Google 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.

    Article  Google 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.

    Article  Google Scholar 

Download references


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.

Author information



Corresponding author

Correspondence to Marc Deloof.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Deloof, M., La Rocca, M. Local financial development and the trade credit policy of Italian SMEs. Small Bus Econ 44, 905–924 (2015).

Download citation


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

JEL Classifications

  • G21
  • G32
  • L26
  • P13
  • R12