The Impact of Institutional Performance on Payment Dynamics: Evidence From the Italian Manufacturing Industry

Abstract

This work aims to shed new light on the relation between institutional performance and firm dynamics. Considering the Italian manufacturing industry and a panel of 3 years, the authors investigate the relation between the time needed by courts to enforce debtors’ obligations and the time needed by enterprises to repay their debts. In particular, we test the hypothesis that efficiency in settling mortgage foreclosure and bankruptcy cases can affect the creditors’ decision making on judicial disputes. According to our thesis, inordinately long waiting times to enforce credit rights may increase the contractual strength of debtors, further delaying payments. As shown by our results, there is a statistically significant positive relation between the enforcement of debtors’ obligations and the adopted payment index, confirming the key role of the judiciary in the dynamics of firms. Indeed, if the time needed to settle bankruptcy cases decreases by 25%, we can expect the payment index to decrease by 1%; while, focusing on foreclosure cases, we can expect the payment index to decrease by 2%. The policy implications of these results are rather compelling. Policy makers could reform foreclosure and bankruptcy procedures to support national economic growth, without additional burden on the public budget.

Financial constraints, investments, and environmental strategies: An empirical analysis of judicial barriers

“…Moreover, adopting RE models, our hypothesis is once again confirmed (see Tables A3 and A4). Lastly, our results are coherent with the literature on the judiciary and firms' access to the capital market (Haselmann & Wachtel, 2010; Moro et al, 2018) and barriers to investments in environmental strategies (García‐Quevedo et al, 2020), as well as current evidence on the Italian manufacturing industry (Falavigna & Ippoliti, 2020, 2021b).…”

“…This means that, anticipating that creditors will be unable to recover their loans easily and cheaply via the courts, borrowers are tempted to default, and lenders respond by reducing the availability of credit. Falavigna and Ippoliti (2018, 2020) gathered similar data on opportunistic behavior and came to the conclusion that the higher the judicial inefficiency in enforcing creditors' rights, the higher the risks taken by managers and/or stockholders, due to the perceived lower likelihood of creditors applying for a declaration of insolvency. Examining loan repayment delays in Italy, Schiantarelli et al (2020) confirmed this evidence, demonstrating that a firm's decision to delay payments to banks depends on its financial health and that legal enforcement of collateral recovery can amplify this phenomenon.…”

“…According to the Italian law, there are two formal procedures to settle an insolvency case (Falavigna & Ippoliti, 2020;Rodano et al, 2016). The creditors can either initiate a process of mortgage foreclosure (i.e., esecuzione forzata), which can target the debtors' movables or real estate, or apply to certify the debtor's insolvency (i.e., istanza di fallimento), and after this preliminary step, the court will enforce their credit rights through a bankruptcy procedure (i.e., fallimento).…”

Financial Constraints and the Sustainability of Dividend Payout Policy

“…This condition might be negatively amplified by asymmetric information between parties and moral hazards [6][7][8], which are even more significant if we consider SMEs, since the probability of being under financial constraint depends on a firm's size [9][10][11]. Therefore, it might prove too difficult or excessively costly for SMEs to finance investments and/or other managerial decisions using external resources and, consequently, companies could adopt internal resources if they are available [12,13] or, alternatively, trade credits [14][15][16][17]. Among managerial decisions, the payment of dividends represents one of the most important.…”

Bibliometric Analysis for Working Capital: Identifying Gaps, Co-Authorships and Insights from a Literature Survey

“…Nonetheless, the performance is, also, impacted by the inventory holding strategies (Afrifa and Berchie 2019) and by the economic resource management (Maity et al 2019). In general, firms with higher levels of WC pay their liabilities over a shorter period (Falavigna and Ippoliti 2020). The WCM policies also impact the firm's ability to deal with adverse market cycles (Filbeck et al 2017).…”