28 Apr

Geographical Review Preview: Spatial networks in trade credit between geographically close industrial small and medium enterprises in an urban environment

By: Mariluz Maté-Sánchez-Val

Article Title, Issue and Volume:
Spatial networks in trade credit between geographically close industrial small and medium enterprises in an urban environment

What is the main purpose of your study?
The main aim of this study is to highlight the relevance of the spatial factor-evaluated in terms of local economic conditions and firms’ environment agents’ characteristics- on the extended trade credit between small and medium companies located in a territory. In particular, we provide a micro-territorial empirical analysis in the urban environment of Madrid over the period 2008-2017 to demonstrate that geographical proximity fosters local networks in trade credit for geographically close reduced size companies.

What are the practical, day to day, implications of your study?
Nowadays with the development of new technologies, empirical studies tend to minimize the relevance of the geographical factor when business behavior is examined. Nevertheless, this study highlights the need of taking into account firms’ environment characteristics when financial decisions of reduced size companies are analyzed. In fact, we highlight the role of both economic and non-economic networks generated between geographically close companies and economic agents. The understanding of this spatial dynamic is fundamental to get additional knowledge about reduced size firms’ financial decisions.

How does your study relate to other work on the subject?
Previous literature has considered the importance of firms’ environment characteristics when we examine the financial structure of the company. But, these studies have been mainly focused on the traditional financial theories based on bank financing and firms’ own resources. In addition, they have been developed under an aggregate perspective considering territorial areas-such as municipalities or provinces- as unit of analysis. As difference with them, we examine firms’ trade credit which-although represents a high proportion of the day a day firms’ financing- has been scarcely studied. In addition, we develop a micro-territorial study considering a sample of companies in the Spanish municipality of Madrid as unit of analysis (see Figure 1).

What are two or three interesting findings that come from your study?
Economic local characteristics present a negative effect on extended trade credit in our sample corroborating that reduced size companies in more developed territories present lower trade credit values than those companies located in less developed territories as we can see in the following Figure 2.

Spatial local networks between geographically close companies impact on their extended trade credit generating spatial local clusters conformed by companies with high or low trade credit values (See Figure 3).

Traditional explanatory factors of firms’ trade credit are significant but they should be considered in a context where the spatial dimension is also included.

What might be some of the theoretical implications of this study?
From a theoretical point of view, this study provides evidence about the relevance of including spatial factors when firms’ financial decisions are examined. In addition, we infer that there is not a general result for all companies but micro-territorial studies should be further considered by characterizing each group of companies in function of their location.

How does your research help us think about Geography?
Our study provides additional evidence about the fundamental role of geography when business behavior is examined. In this case, reduced size companies-which represent more than 98% of the total number of companies in developed countries- are highly depending on environment economic characteristics when their financial decisions are studied.

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