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Trade Credit and Firm Investments: Empirical Evidence from Italian Cooperative Banks

Filomeni, Stefano and Modina, Michele and Tabacco, Elena (2021) Trade Credit and Firm Investments: Empirical Evidence from Italian Cooperative Banks. Working Paper. Essex Finance Centre Working Papers, Colchester. (Unpublished)

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Abstract

By exploiting a unique and proprietary panel dataset comprising 18,682 Italian SMEs operating 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 those 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 commercial 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.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: SMEs, trade credit, investment, relationship lending, soft information, cooperative bank
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 06 Apr 2021 08:09
Last Modified: 06 Apr 2021 08:09
URI: http://repository.essex.ac.uk/id/eprint/30149

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