We document significant differences in the financing structures of small firms with managers diverse cultural backgrounds. To isolate effect culture, we exploit heterogeneity within a geographical area shared regulations, institutions, and macroeconomic cycles. Our findings suggest preference toward debt funding use formal informal sources (bank loans trade credit). results are robust to alternative explanations based on potential credit constraints distribution origins across industries,...

We assemble a unique dataset containing population-level information on loan applications in region hosting two cultural groups to study the role of culture firm borrowing decisions. find that firms are more likely apply for loans from culturally close banks. This effect is stronger opaque firms, but not less performing indicating do expect preferential treatment same-culture Loan distant banks increase sharply with firms' size and age, suggesting asymmetry firm-bank matching. In contrast,...

Does an increase in credit supply affect firms' likelihood to invest green technologies? To answer this question, we use text algorithms extract information on investments from the comments financial statements of Italian SMEs between 2015 and 2019. identify effect supply, all loans disbursed by banks operating Italy construct a firm-specific time-varying instrument for availability. We find large positive elasticity supply. The is concentrated among firms with high availability internal...

We exploit the exogenous Covid-19 shock in a bicultural area of Italy to identify cultural differences way companies respond economic shocks. Firms with managers diverse backgrounds resort different forms government aid, diverge their investment decisions, and have growth rates. These findings are consistent time preferences debt aversion. Specifically, we find that response belonging more long-term oriented culture is characterized by lower recourse debt, investments higher Overall, our...

Using a supplier-client matched sample, we study the effect of 2007-2008 financial crisis on between-firm liquidity provision. Consistent with causal negative shock to bank credit, find that firms high pre-crisis levels increased trade credit extended other corporations and subsequently experienced better performance as compared ex-ante cash-poor firms. Trade taken by constrained during this period. These findings are consistent providing insurance their clients when is scarce provide an...

We study the effect of 2007-2008 financial crisis on between-firm liquidity provision. The caused an unexpected negative shock to bank credit supply which provides a unique opportunity role alternative sources financing in compensating for unavailable under these extreme circumstances.

Abstract Using a sample of distressed firms with information about suppliers, we document an average fall in the use trade credit as approach bankruptcy compared to control nonbankrupt firms. However, uncover large degree heterogeneity across suppliers. Suppliers facing high switching costs maintain their business ties they bankruptcy, and provide them more credit. concentrated markets temporary support clients. Overall, findings this paper suggest that are fundamental explain whether...

We estimate the economic impact of climate change by exploiting variation in local temperature across suppliers same client. find that experiencing a 1°C increase average daily decrease their sales 2%. The effect is more pronounced among manufacturing and heat-sensitive industries, which consistent with lower labor productivity supply when temperatures are higher. Financially constrained affected due to lack financial flexibility adapt changes temperatures. also episodes extremely hot cold...

Abstract We estimate the indirect costs of financial distress due to lost sales by exploiting real estate (RE) shocks and cross-supplier variation in RE assets leverage. show that for same client buying from different suppliers, client’s purchases distressed suppliers decline an additional 13% following a drop local prices. The effect is more pronounced competitive industries, manufacturing, durable goods, less-specific when switching are low. Our results suggest clients reduce their...

I empirically examine whether banks incorporate information about small firms' previous credit repayment patterns into their decisions. provide evidence consistent with transaction being unwilling to lend firms that have been delinquent in obligations. In contrast, relationship use private accumulated throughout extended interactions firms, and disregard the patterns. By interacting different types of information, further identify soft component gathered by is an important determinant bank...

We find evidence that input suppliers provide credit quality certification to their borrowers. Banks are more likely lend firms have been granted trade by and pay higher proportions of debts on time. This 'certification' role is most apparent when banks relatively uninformed about potential creditors, opaque. address causality using instruments motivated theories empirical regularities the corporate use credit. Results robust potentially endogenous relationships between bank

Abstract Focusing on the art market, where auction houses act as brokers between sellers and buyers, we investigate whether more experienced achieve better performance information providers matchmakers. We find that with artist‐specific experience are likely to a sale provide precise pre‐sale estimates. These findings suggest in specific market segment plays an important role for reduce illiquidity opacity markets asymmetric information. Our analysis also shows matters above beyond other...

We examine whether banks use soft information in their lending decisions. To overcome the problem of measurement, we analyze publicly available variables that are correlated with borrowers' credit quality more significant explaining decisions have no information. find power these to predict outcomes is lower whenever bank has access The results indicate importance small business lending, and robust several measures availability, a potentially endogenous relationship between quality.

Theories suggest that asset encumbrance, the ring-fencing of certain assets for protected debtholders, can affect banks' risk-taking and lead to funding instability. We test these hypotheses using a unique, hand-collected dataset on outstanding covered bonds issued by sample listed European banks. Our results effect encumbrance risk depends proportion debtholders exerting market discipline bank's liquidity buffers. deal with concerns regarding omitted variables reverse causality several...

Theory suggests that by lending to a firm, inside banks gain an informational advantage over non-lender outside banks. This gap hinders borrowers from switching lenders due winner's curse faced competing banks, leading hold-up problems. In this paper, we show firms can reduce forming deposit relationships with thereby attenuating hold-up. Using unique data on the and of all firm-bank pairs in Norway, find having relationship significantly increases firm's likelihood lenders. Furthermore,...

What is the role that credit supply plays in climate transition process? We answer this question by looking at effect of bank loans on green investments. use textual algorithms to extract information investments from comments financial statements Italian firms between 2015 and 2019, match with loan-level data Credit Registry. Using an exogenous firm-specific time-varying measure supply, we find provision significantly increases firms' likelihood undertake This more pronounced for operating...

We analyze the relationship between contracts and returns in private equity (PE) investments. Contractual control form of covenants tends to be employed identify good deals. Better quality firms are more likely have covenant-rich contracts, as they less concerned by constraints imposed covenants. PE investors appoint closer associates fund deals that performing poorly but tend outsource board governance better Collectively, our evidence suggests operate along two dimensions, choosing seats...

Using a sample of distressed firms with information about suppliers, we document an average fall in the use trade credit as approach bank-ruptcy compared to control non-bankrupt firms. However, uncover large degree heterogeneity across suppliers. Suppliers facing high switching costs maintain their business ties they bankruptcy, and provide them more credit. concentrated markets temporary support clients. Overall, findings this paper show that are fundamental ex-plain whether suppliers...

This paper analyzes whether the financial distress of a firm affects investment decisions non-distressed competitors. On average, firms in impose indirect costs to competitors by increasing credit industry and hence restricting access investment. These average negative effects continue hold absence downturns are temporary. However, mitigated for with stronger balance sheets or concentrated markets, suggesting that strong prey on their weaker rivals improve market position.

We estimate the supply side effect of climate change on firm sales by exploiting variation in local temperature across suppliers same client. find that experiencing a 1°C increase average daily decrease their 2%. In addition, extreme hot and cold weather events lead to larger drops sales. The is more pronounced among manufacturing heat-sensitive industries, which consistent with lower labor productivity when temperatures are higher. Financially constrained affected due lack financial...