Riding Out of a Financial Crisis: The Joint Effect of Trust and Corporate Ownership

• Authors: Mircea Epure.
• BSE Working Paper: 110667 | July 20
• Keywords: Family firms , performance , financial crisis , trust , trade financing
• JEL codes: G32, G34, Z10
• Family firms
• performance
• financial crisis
• trust
• trade financing

We study how generalized trust shapes the ability of firms with different ownership forms to obtain trade financing and perform during a financial crisis. Exploiting geographic variations in trust across Italian regions and the occurrence of the 2008-09 financial crisis in a difference-indifferences setting, we show that generalized trust makes family firms less able to obtain trade financing during the crisis. This finding maps into performance results: trust alleviates the negative effect of a crisis for non-family firms, while it aggravates the negative effect for family firms. This latter result depends crucially on a firm’s corporate governance: trust does not harm family firms whose board is open to non-family directors. Collectively, our findings illustrate how culture interacts with corporate attributes in shaping a firm’s prospects.