Does the bank‑firm human relationship still matter for SMEs? The game‑changing role of digitalization

Noteworthy contributions have highlighted that human contact is a considerable factor in bank-firm relationships. It allows the acquisition of soft information, which alleviates information asymmetries and increases the use of bank debt. The advent of digital technologies in the information collection process open new horizons and change the role of personal contacts in bank-firm interactions, as entrepreneurs visit bank branches less frequently. This study uses a large sample of Italian SMEs from 2011 to 2020 and finds that the rapid increase and use of digital instruments have reduced the positive influence of physical closeness between banks and SMEs on the indebtedness levels. Interestingly, our study has also found that the COVID-19 crisis did not amplify this moderating effect. Results support theories that human contact is an important factor in bank-firm relationships because it allows the acquisition of soft information, which alleviates information asymmetries and increases the use of bank debt. Our study suggests that close human ties are still extremely relevant and digitalization should be exploited to support the collection of the kind of qualitative soft information that is crucial in debt negotiations.