Early stage SME bankruptcy: does the local banking market matter?
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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.
KeywordsProbability of bankruptcy SMEs Multilevel model Local banking structure
JEL codesC26 C30 M13 R11 L26
We are very thankful to Maurizio La Rocca who provided expertise that greatly assisted the research. We are also grateful to two anonymous referee of the research center EconomiX for their suggestions. We are grateful to Marcus Dejardin, Claudia Ghisetti and all the participants of the KID 2017 Thematic School InSHS CNRS for their precious comments on an earlier version of his paper.
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