Does location matter in corporate finance? An empirical investigation on manufacturing SMEs and the consequences of being on the “wrong” side of the institutional border

Considering a population of manufacturing SMEs located in a common socio-cultural environment and divided by an institutional border, this work investigates the potential consequences of being sited on the “wrong” side of that border (i.e., the area with a longer delay in enforcing credit rights). According to our results, we cannot reject the hypothesis that locations affect the financing of SMEs, providing a contribution to the current debate on whether institutions are a source of comparative advantage (or disadvantage) in regional growth. Indeed, crossing that institutional border and assuming we detect a 10 % higher inefficiency, we expect to observe a lower financial debt ratio (-0.03) and a lower trade credit ratio (-0.06), as well as a higher shareholders’ loan ratio (+0.08) and lower investments in tangible fixed assets (-2733 TEUR). Policy implications concern the opportunity for a structural reform of the national institutional system, as well as the adoption of specific policies to support the SMEs located on the “wrong” side of the border, supporting their access to the capital market.