Proximity and Financial Distress: Evidence from Debt Renegotiations in Italian SMEs

Purpose: This study examines whether SMEs located in municipalities that favor proximity to stakeholders are more likely to survive financial distress through debt restructuring. Drawing on the resource-based view of the firm, we hypothesize that proximity, as a form of social capital, is a crucial asset in times of crisis. Design/methodology/approach: This study employs a multivariate logistic regression to analyze a sample of Italian private SMEs that underwent formal debt renegotiation between 2017 and 2019. Findings: The results of our analyses show that proximity significantly aids in resolving financial distress through debt restructuring. Research limitations/implications: This study is limited to a single country. Future research could extend the analysis to multiple countries to explore the influence of different legal frameworks on the results. Practical implications: This study provides valuable insights for distressed companies, highlighting the need to invest in stakeholder relationships to reduce the risk of failure. Originality/value: This study is the first to examine the proximity dimension of social capital in the context of financial distress, highlighting the importance of stakeholder support as a vital intangible resource for recovery.