This paper combine two strands of the literature: one that looks at the effects of legal-institutional factors and one that focuses on the impact of social capital in the credit markets.
The chapter sheds light on the determinants of the cost of funding for SMEs in the euro area. In particular, the authors’ goal is to verify whether features such as the institutional and legal framework and the level of social capital significantly affect the cost of funding for SMEs in the euro area. The authors perform an empirical analysis based on a large sample of 22,295 firm-level observations from 2009 to 2013 for a sample of 11 euro area
countries, taken from the SAFE. Their findings show that a less efficient judicial system as well as a higher degree of concentration in the banking industry increases the cost of funding for SMEs. The cost of funding for SMEs is, instead, reduced when the market share of cooperative banks and the social capital are higher. Overall, the study supports the view that a better institutional environment and a wider presence of social capital
produce positive externalities in the credit market.
