Small firms and bank financing in bad times
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Small firms and bank financing in bad times Giulio Cainelli & Valentina Giannini Donato Iacobucci
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Accepted: 13 March 2019 # Springer Science+Business Media, LLC, part of Springer Nature 2019
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.
G. Cainelli Department of Economics and Management BMarco Fanno^, University of Padova, Padova, Italy e-mail: [email protected] e-mail: [email protected] V. Giannini : D. Iacobucci Department of Information Engineering, Polytechnic University of Marche, Ancona, Italy
D. Iacobucci e-mail: [email protected]
Keywords Bank-financing . Small firms . Business groups . Financial crisis JEL codes G32 . L22 . G01 . G21 . L26
1 Introduction When financial markets do not work efficiently, firms may be financially constrained. The presence and intensity of these limitations can differ across countries, historical periods, and firm types. This paper investigates these constraints in Italy during the period 2010– 2012 when the financial crisis and the subsequent domestic recession caused a severe credit-crunch. Our empirical analysis focuses on two types of small firms: independent firms and firms belonging to a business group. The latter are defined as sets of legally independent firms controlled by the same entity through ownership ties. The owner entity can be an individual or a group of individuals—often members of the same family (Almeida and Wolfenzon 2006). Controlled companies belonging to a business group usually benefit from greater autonomy and their legal autonomy allows them to access capital markets directly. We focus on bank financing since this is the main source of external financing for Italian companies, especially small- and medium-sized enterprises (SMEs). In Italy, as in other European countries, banks dominate financial markets for the provision of financial resources to firms (Mieli 2009). Previous studies show that, compared to independent companies, firms affiliated to
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business groups have easier access to bank-financing (Belenzon et al. 2013; Iacobucci 2012; Lee et al. 2009; Samphantharak 2003). Internal capital markets allow business groups t
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