Medium-sized Enterprises (MEs) are a limited number of Small and Medium-sized Enterprises (SMEs) in EU-28 countries, but they contribute greatly to value added and employment. They are also key to pursuing sustainable local development in terms of green economic growth. Because trade credit is a crucial financial source for SMEs, this article investigates the importance of trade credit for Italian MEs, and particularly for ‘green’ MEs, rather than ‘non-green’ MEs. A panel analysis is applied to 101,250 observations over the period 2010–2019. We find that green MEs rely more on trade credit than non-green MEs. Moreover, trade credit is more important for younger, smaller, less profitable, and less liquid MEs. We further show that a substitution effect between trade and banking credit exists, and that the local development level affects the demand for trade credit. Our results demonstrate that trade credit supports sustainable development more than banking credit. Financial intermediaries should therefore include green parameters in the assessment of the creditworthiness of MEs, and policymakers should consider that trade credit and financial inclusion may be important in pursuing sustainable local development and economic growth.
A domestic credit insurance contract is a policy that covers the risk of the nonpayment of future commercial credit as a result of the failure to pay within the agreed terms and conditions (protracted default) or the insolvency of the buyer. To evaluate the effective level of financial protection offered by trade credit policies, we collected a database of contracts issued between 2006 and 2013 by a number of Italian insurance companies, which account for 80-85% of the Italian market. We find that, to be considered as able to mitigate credit risk, the policies must have their contract clauses changed. In that case, such a policy, if accepted by the supervisory authority, could permit banks to reduce the capital requirement connected with the discount of trade credits. These results are particularly important for insurance companies.
This study explores the impact of being “green” as a response to variability in the business environment. We examine the financial resilience of green Small and Medium-sized Enterprises (SMEs) in Italy compared to non-green during the COVID-19 pandemic. We verify whether green SMEs are more able to attract external funding than non-green and whether green SMEs rely more heavily on trade credit than non-green ones. We carry out an analysis with 215,564 observations, of which 6844 refer to “green” firms, over the period 2017–2020 and we find that before and during the pandemic, Italian green SMEs do not attract more external funding than other SMEs, but they rely more on trade credit than non-green SMEs. Our results partially confirm the traditional substitution effect, and we suggest that the reasons for this relationship are also supplied in the literature which sees trade credit as a component of a long-term portfolio management strategy, i.e., as a tool for consolidating relationships with clients, for price discrimination and/or for increasing firm profitability in facing variable demand conditions. Our paper contributes to the literature in two ways. First, it investigates the relationship between the “green” characteristics of a firm and its level of economic and financial resilience during the pandemic. Second, it verifies whether, during a complex economic shock, green orientation increases or decreases the importance of trade credit relative to bank credit in financing the firm.
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