SME Financial Strength and Availability of Credit in the Local Market: an Empirical Analysis of Italian Data

The health and economic crisis of 2020 affected companies, especially SMEs, to different extents in different territories. This study aims to show whether and how local financial conditions impact the financial robustness of firms and whether all firms are equally subject to their effects. Based on a sample of more than 25,000 observations of Italian SMEs analyzed through a multilevel model, we show that the Altman Z-score, a classical indicator of the financial robustness of a firm, is sensitive to the presence of banks and, therefore, to the availability of credit in an area. However, this relationship does not hold in the same way for all companies. These results help to understand how the structure of the local credit market can be used to strengthen the resilience of SMEs in the event of a macroeconomic shock.