Does institutional quality matter for lending relationships?

Why the number of banking relationships per firm varies so much across space? Is it due to microeconomic features of firms localized in different places or is there something systematic, connected to geographical macroeconomic factors? Does local institutional endowment matter in the firm’s choice? We address these issues with reference to the Italian case, one particularly interesting because of the substantial institutional gap between Center-North and South, and the high average number of banking relationships. Consistent with previous studies, we find that provincial institutions are a basic determinant of the observed differentials in the number of banking relationships per firm.