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Bank competition and firm creation

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  • Emilia Bonaccorsi Di Patti

    ()
    (Banca d'Italia)

  • Giovanni Dell'Ariccia

    (IMF, Research Department)

Abstract

We investigate the effects of competition in the banking sector on the creation of firms in the non-financial sector, explicitly allowing for heterogeneous effects across borrowers characterized by different degrees of asymmetric information. We find evidence of a bellshaped relationship between bank competition and firm creation. In addition, consistent with models finding that competition may reduce the availability of credit to informationally opaque firms, we find that bank competition is less favorable to the emergence of new firms in industries where information asymmetries are greater.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 481.

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Date of creation: Jun 2003
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Handle: RePEc:bdi:wptemi:td_481_03

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Web page: http://www.bancaditalia.it
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Keywords: commercial banks; competition; asymmetric information; new businesses;

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References

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  17. Michael H. Riordan, 1992. "Competition and Bank Performance: A Theoretical Perspective," Papers 0026, Boston University - Industry Studies Programme.
  18. Besanko, David & Thakor, Anjan V., 1992. "Banking deregulation: Allocational consequences of relaxing entry barriers," Journal of Banking & Finance, Elsevier, vol. 16(5), pages 909-932, September.
  19. Sandra E. Black & Philip E. Strahan, 2002. "Entrepreneurship and Bank Credit Availability," Journal of Finance, American Finance Association, vol. 57(6), pages 2807-2833, December.
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