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Small firms and bank financing in bad times

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Abstract

This paper aims to analyze access to bank financing by small firms belonging to business groups compared to independent firms. We consider Italian manufacturing firms during the severe credit-crunch during 2010–2012 caused by the financial crisis and subsequent domestic recession. We expect belonging to a business group to facilitate access to bank financing as the result of two different mechanisms: (i) the implicit guarantee provided by group belonging (affiliation effect) and (ii) the transfer of resources via the internal capital market (portfolio effect). The empirical evidence confirms our hypotheses. Belonging to a business group facilitates access to bank financing, while the presence of an internal capital market, which substitutes for both the decision to obtain bank financing and the amount borrowed, makes firms that are part of a business group less dependent than independent firms on this type of financing.

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Notes

  1. The transfer of financial sources in business groups can refer to equity or loans. We consider only loans; it has been shown that to alleviate the financial constraints of a member firm, it is easier to use internal debt than internal equity (Buchuk et al. 2014; Chang 2003).

  2. Tunneling refers to the transfer of assets and profits out of controlled firms to benefit the controlling shareholders. It is a form of expropriation of minority shareholders (Johnson et al. 2000).

  3. Bank of Italy, 2012 Annual report.

  4. AIDA is a database of Italian joint stock companies provided by Bureau Van Dijk.

  5. In the EU, SMEs in the manufacturing industry are identified as firms with less than 250 employees and annual turnover of less than 50 million Euros.

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Authors and Affiliations

  1. Department of Economics and Management “Marco Fanno”, University of Padova, Padova, Italy

    Giulio Cainelli

  2. Department of Information Engineering, Polytechnic University of Marche, Ancona, Italy

    Valentina Giannini & Donato Iacobucci

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  1. Giulio Cainelli
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  2. Valentina Giannini
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  3. Donato Iacobucci
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Correspondence to Valentina Giannini.

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Cainelli, G., Giannini, V. & Iacobucci, D. Small firms and bank financing in bad times. Small Bus Econ 55, 943–953 (2020). https://doi.org/10.1007/s11187-019-00164-7

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