Financial Fragility and Corporate Bond Funding of SMEs: An Analysis of the Italian Case

Abstract

The chapter analyzes the financial policy of corporate bond issuers in the new Italian junior bond market specifically dedicated to unlisted firms and SMEs, using a proprietary firm-level dataset on 127 first-time mini-bond issuers across 2013–2017 years jointly with a control sample of around 5200 Italian private firms that have not issued corporate bonds across the same years. Since SME access to the debt capital market is largely considered a valuable source of debt funding diversification, especially for growth firms with a prominent exposure on bank debt, we test using OLS regressions whether bond issuers are able to reduce their financial vulnerability in comparison with similar nonissuers firms. The aim is to assess the extent to which the financial choices of SMEs regarding nonequity external funding can become a key factor in facing real and financial shocks like those triggered by the current pandemic Covid-19 outbreak. Our findings suggest that the access to the junior bond market is beneficial for the Italian unlisted companies in terms of a pronounced improvement in our financial fragility indicators.