Riding Out of a Financial Crisis: The Joint Effect of Trust and Corporate Ownership
43 Pages Posted: 16 May 2017 Last revised: 31 Aug 2020
Date Written: July 13, 2020
We study how generalized trust shapes the ability of firms with different ownership forms to obtain trade financing and perform during a financial crisis. Exploiting geographic variations in trust across Italian regions and the occurrence of the 2008-09 financial crisis in a difference-in-differences setting, we show that generalized trust makes family firms less able to obtain trade financing during the crisis. This finding maps into performance results: trust alleviates the negative effect of a crisis for non-family firms, while it aggravates the negative effect for family firms. This latter result depends crucially on a firm’s corporate governance: trust does not harm family firms whose board is open to non-family directors. Collectively, our findings illustrate how culture interacts with corporate attributes in shaping a firm’s prospects.
Keywords: trust, trade financing, family firms, financial crisis, performance
JEL Classification: G32, G34, Z10
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