Abstract: The Financing of SMEs and the Role of Knowledge: Some Evidence from Trentino-South Tyrol, 1950s-1990s

Cinzia Lorandini

Abstract

In this essay I explore the role of knowledge in the financing of SMEs by combining the results of theoretical and empirical analysis with historical evidence. Theoretical explanations of the role of banks place particular emphasis on information asym-metries, thereby accounting for the privileged relationships that local banks have traditionally developed with small firms. However, as suggested in the "capabilities" literature, the concept of knowledge should be distinguished from that of information. Moreover, the operation of local banks has been strongly affected in the past by both government intervention and the attitude of the supervisory authorities. After providing a conceptual frame-work, I present some historical findings on the interweaving of economics and politics in SME finance with reference to the Italian experience. I then investigate the role of knowledge in the financing of SMEs in Trentino-South Tyrol—a region in northeastern Italy—in the second half of the twentieth century. For this purpose, I draw mainly on qualitative evidence provided by the records of Mediocredito Trentino-Alto Adige, a public law credit institute established in 1953 to issue medium- and long-term loans to SMEs in the region.

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