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

Stefano Filomeni (), Michele Modina () and Elena Tabacco ()
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Stefano Filomeni: Essex Business School, Finance Group
Michele Modina: University of Molise

Review of Quantitative Finance and Accounting, 2023, vol. 60, issue 3, No 8, 1099-1141

Abstract: Abstract 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.

Keywords: SMEs; Trade credit; Investment; Relationship lending; Soft information; Cooperative bank (search for similar items in EconPapers)
JEL-codes: D22 D82 G21 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-022-01122-3

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