Conference Agenda

This paper shows that banks rely on external credit ratings more than on public information. Using the French credit register, I implement a difference-in-difference strategy that exploits staggered removal of bankruptcy flags from credit ratings on small and medium-sized businesses between 2012 and 2019. I show that flag removal leads to better access to bank credit and the formation of new banking relationships, although bankruptcy information remains publicly available. The increase primarily comes from less informed lenders. As a result, firms increase their investment rate. This paper supports the policy choice of shortening the bankruptcy flag.

In this paper, we examine the effect of disruption within the local Mafia network on the financial health of businesses. We propose that the Mafia operates as a facilitator, smoothing the path for small and medium-sized enterprises (SMEs) to obtain external credit. This facilitating mechanism typically goes unnoticed. However, when an unexpected event disrupts the Mafia system, it can strain the mechanism, potentially triggering noticeable changes. Our study explores such a disruption through a "shock scenario", specifically a shift in local Mafia leadership. We hypothesize that this shift follows the sudden absence of a key Mafia figure, due to events like arrest, death, or similar causes. As the old leader exits, a new mafia leader takes his place. We hypothesize that this leadership change sparks a period of heightened activity from the new boss, signalling a shift in the local power structure. This “signal-oriented hyperactivity” aims to secure legitimacy and recognition within the territory and demonstrate the entrepreneurial skills of the new Mafia boss to other Mafia groups.

We hypothesize a scenario where the Mafia steps into the role of a credit intermediary. Instead of directly controlling businesses through ownership, the Mafia might prefer a more subtle form of influence. It would act indirectly, offering protection and guarantees to firms rather than running them. In this narrative, the Mafia becomes a “smooth operator”, creating and leveraging soft information that’s crucial for accessing credit.

To test our hypothesis, we examine the relationship between SME debt (both volume and cost) and changes in local Mafia influence, which we classify as significant events or shocks. We conduct a regression analysis covering the period from 2011 to 2022. Our findings show that Mafia leadership shocks are associated with increases in leverage and debt costs. These effects are particularly pronounced for businesses with female key stakeholders. Additionally, external factors like institutional quality and politics can amplify the effects of Mafia shocks on corporate finance. Our results indicate that institutional quality and political dynamics, especially in municipalities governed by civic and left coalitions, play a significant role in this process.

Monetary policy can have contrasting effects on economic inequality via distinct channels. We examine an effect working via the credit channel, whereby monetary pol- icy induces heterogeneous access to credit for business owners based on their wealth. Using unique data on business loan applications from small firms, we find that monetary expansions increase the likelihood to approve loan applications, particularly so for low-wealth entrepreneurs, translating to higher future income and wealth. Survey data from 19 euro area countries on loan applications by SMEs confirms these findings, and shows that the effects transmit especially via weakly capitalized and less liquid banks.