Local Financial Development and SMEs Capital Structure: An Empirical Investigation

29 Pages Posted: 8 May 2009

See all articles by Mariarosaria Agostino

Mariarosaria Agostino

Università degli Studi della Calabria - Department of Economics and Statistics

Maurizio La Rocca

Università degli Studi della Calabria

Tiziana La Rocca

Università degli Studi della Calabria

Francesco Trivieri

Università degli Studi della Calabria - Department of Economics and Statistics

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Date Written: April 27, 2009

Abstract

The present study investigates the role of institutional differences at the local level as determinants of firms’ capital structure. Specifically, the aim is to empirically assess whether and to what extent SMEs’ financial decisions are affected by local financial development - evaluating this influence both ceteris paribus, and by allowing it to be conditional on different levels of legal enforcement inefficiency. After controlling for debt inertia, firms’ heterogeneity and endogeneity problems, the main finding of the analysis suggests that local financial development may be an important determinant of SMEs’ capital structure. In fact, firms appear to have better access to financial debt in areas characterized by a higher quality of the legal system - possibly as intermediaries may be more inclined to provide funds where the enforcement systems enable a more effective credit protection. Despite the international process of capital markets integration, local financial institutions do not seem to become irrelevant for SMEs - which are in need of well developed institutions at local level to gain easier access to external financial resources.

Keywords: firms’ capital structure, bank debt, local financial development, local enforcement system, SMEs

JEL Classification: G21, G30

Suggested Citation

Agostino, Mariarosaria and La Rocca, Maurizio and La Rocca, Tiziana and Trivieri, Francesco, Local Financial Development and SMEs Capital Structure: An Empirical Investigation (April 27, 2009). Available at SSRN: https://ssrn.com/abstract=1399403 or http://dx.doi.org/10.2139/ssrn.1399403

Mariarosaria Agostino

Università degli Studi della Calabria - Department of Economics and Statistics ( email )

via Ponte Bucci
Arcavacata di Rende, Cosenza 87036
Italy
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

Maurizio La Rocca

Università degli Studi della Calabria ( email )

Ponte Bucci, Cubo 3C
Rende (Cosenza), Cosenza 87036
Italy

HOME PAGE: http://www.mauriziolarocca.it

Tiziana La Rocca

Università degli Studi della Calabria ( email )

87036 Arcavacata di Rende CS
Italy

Francesco Trivieri (Contact Author)

Università degli Studi della Calabria - Department of Economics and Statistics ( email )

via Ponte Bucci
Arcavacata di Rende, Cosenza 87036
Italy

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