How Local Finance and Enforcement Shaped SME Credit Choices before and during the COVID Crisis

Francesco Fasano (), Maurizio La Rocca, F. Javier Sánchez-Vidal, Maria Josephin Lio and Alfio Cariola
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Francesco Fasano: Department of Business Administration and Law, University of Calabria, 87036 Rende, Italy
F. Javier Sánchez-Vidal: Departamento de Economía, Contabilidad y Finanzas, Facultad de Ciencias Empresariales, Universidad Politécnica de Cartagena, 30201 Cartagena, Spain
Maria Josephin Lio: Department of Business Administration and Law, University of Calabria, 87036 Rende, Italy
Alfio Cariola: Department of Business Administration and Law, University of Calabria, 87036 Rende, Italy

IJFS, 2024, vol. 12, issue 1, 1-16

Abstract: Credit from suppliers is an important source of finance for firms. It can sustain firms’ financial flexibility even in periods of downturn. In this study, using a large database of 90,763 Italian firms in the 2015–2021 period, we investigated how local financial development affects the trade-credit policies of SMEs and how this effect is conditioned by the degree of judicial enforcement. Given that trade credit can be a substitute for bank financing, we find that firms make more use of trade credit in developed financial markets. Moreover, we highlight the finding that a higher degree of judicial enforcement, which reinforces the role of contracts in the market, amplifies this effect. Finally, we observe that the COVID-19 crisis has reduced both the positive effect of local financial development and the positive moderating effect of enforcement in the use of trade credit.

Keywords: financial development; judicial enforcement; trade credit; COVID crisis (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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