Paper #1733

Title:

Riding out of a financial crisis: The joint effect of trust and corporate ownership

Authors:

Mario Daniele Amore and Mircea Epure

Date:

July 2020

Abstract:

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-indifferences 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 codes:

G32, G34, Z10

Area of Research:

Finance and Accounting

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