Capital Structure Across Italian Regions : The Roles of Financial and Economic Determinants

The objective of this article is to analyse how the regional financial and economic differences influence the capital structure decisions of small and medium-sized enterprises (SMEs). Specifically, the paper considers the regional financial and economic differences dividing four aspects: the development of the financial sector in the region; the bank market concentration; the financial cost of obtaining funds; and the regional economic development. For this purpose, we use an unbalanced panel data of 26,504 SMEs across the 20 Italian regions and over the period 2004 to 2010. This work is completed with an analysis during no-crisis (2004-2007) and crisis period (2008- 2010). The results show that differences in the degree of financial sector development, banking concentration, costs of funding and local economic situation have a significant impact on the level of leverage of SMEs, while the cost of obtaining funds is only relevant in a period of economic stability. These results suggest that more insights can derive from the data disaggregation at the regional level inside the same country, rather than from cross-country data in the analysis of capital structure