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

Abstract

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 financial crisis in a difference-in-differences setting, we show that generalized trust makes family firms less able to obtain trade financing during a financial 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. Trust is especially harmful for firms with a high level of family representation in board positions. Collectively, our findings illustrate how cultural characteristics interact with corporate attributes in shaping a firm’s prospects.