The reform of national judicial geography and access to local financial resources: unintended territorial effects of a central policy in Italy

Italy’s judicial system has long been marked by inefficiencies that hinder local economic development. To improve judicial productivity—while at the same time seeking to contain public spending—a central policy was enacted to suppress and merge courts across the country. However, municipalities were excluded from the design and selection process, which resulted in unintended territorial consequences. This study investigates the impact of this reform on access to external financial resources for manufacturing SMEs, using a Difference-in-Difference approach between 2014 and 2018. We find that the consolidation of courts—while aimed at enhancing efficiency—altered the institutional landscape in ways that affected firms’ access to capital markets. Specifically, SMEs located in municipalities where courts were merged experienced improved financial conditions, suggesting that judicial centralization may inadvertently influence local credit dynamics. More specifically, we observe a beneficial effect on borrowing costs: SMEs experienced a reduction in approximately 3% in their financing costs. Even if the observed effect is positive, the findings highlight the importance of considering territorial governance and the role of local institutional presence when designing national reforms.