Trade credit and firm investments: empirical evidence from Italian cooperative banks

By exploiting a unique and proprietary panel dataset comprising 6480 Italian SMEs having a relationship with 99 cooperative banks over the period 2008–2014, we investigate the influence of the trade credit channel on firm investment decisions in the Italian market, distinguished by a considerable pr...

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Bibliographic Details
Published in:Review of quantitative finance and accounting 2023-04, Vol.60 (3), p.1099-1141
Main Authors: Filomeni, Stefano, Modina, Michele, Tabacco, Elena
Format: Article
Language:English
Subjects:
Accounting/Auditing
Banking industry
Banks
Comparative studies
Corporate Finance
Credit
Econometrics
Economics and Finance
Finance
Financing
Investment policy
Investments
Operations Research/Decision Theory
Original Research
Positioning
Provinces
Small & medium sized enterprises-SME
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Summary:By exploiting a unique and proprietary panel dataset comprising 6480 Italian SMEs having a relationship with 99 cooperative banks over the period 2008–2014, we investigate the influence of the trade credit channel on firm investment decisions in the Italian market, distinguished by a considerable presence of relationship cooperative banks’ branches with a heterogeneous geographical distribution. Firstly, our findings confirm a significant influence of the trade credit channel on firm investment decisions. Secondly, we document that SMEs located in those Italian provinces with an abundance of cooperative banks’ branches rely less on trade credit to finance investments. Lastly, we show that longer firm-bank relationships decrease firm dependence on trade credit to boost investments. Our study is of particular relevance because it strengthens the effectiveness of the trade credit channel for SMEs in spurring corporate investments. Indeed, fostering a deep understanding of the real effects of firm financing sources is paramount to encourage investment by SMEs and to allow them to preserve their positioning in the market. Moreover, we exploit the Italian market, well-suited to perform such an analysis, since it is characterized by more inter-personal financing relationships as compared to other countries.
ISSN:0924-865X
1573-7179
DOI:10.1007/s11156-022-01122-3