Evidence on Funding Decisions by Italian SMEs: A Self-Selection Model?

22 Pages Posted: 25 Jun 2010

See all articles by Paola Brighi

Paola Brighi

University of Bologna - Department of Management

Giuseppe Torluccio

University of Bologna - Department of Management; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2007

Abstract

This paper sets out to analyse the determinants of Italian SMEs’ choices of sources of finance, with specific reference to the role of informed (internal) capital compared to other forms of finance. In this work, we aim to identify the determinants of the mix of sources of finance using data from the Survey of Italian Firms conducted by Capitalia, bearing in mind the structural characteristics of the firms and the banking market, and the problems of the information asymmetry between the bank and the firm. Although the financial hierarchy theory suggests that firms prefer self-financing, because it is less expensive in economic terms, relationships with local banks may offer advantages which encourage firms to enter into debt contracts even in the absence of binding internal constraints. The empirical study focused in particular on the role of self-financing as an alternative to external sources. In order to measure the decision to use self-financing and the subsequent composition of the financing mix, we used different techniques, first independent models and then a self-selection model. The first results, in line with the pecking order theory, confirm an approach comprising an initial check on the availability of internal resources, followed if by the use of external capital, including bank debt.

Suggested Citation

Brighi, Paola and Torluccio, Giuseppe, Evidence on Funding Decisions by Italian SMEs: A Self-Selection Model? (June 1, 2007). Available at SSRN: https://ssrn.com/abstract=1629988 or http://dx.doi.org/10.2139/ssrn.1629988

Paola Brighi (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna 40126
Italy

Giuseppe Torluccio

University of Bologna - Department of Management ( email )

via Capo di Lucca 34
40126 Bologna
Italy
+39 051 2098085 (Phone)

HOME PAGE: http://WWW.SA.UNIBO.IT

Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) ( email )

via Berengario 51
Modena, modena I-41100
Italy

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