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New firm formation and industry growth - does having a market- or bank-based system matter?

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  • Beck, Thorsten
  • Levine, Ross

Abstract

The authors find no evidence for the superiority of either market-based or bank-based financial systems for industries dependent on external financing. But they find overwhelming evidence that industries heavily dependent on external finance grow faster in economies with higher levels of financial development, and with better legal protection for outside investors - including strong creditor and shareholder rights and strong contract enforcement mechanisms. Financial development also stimulates the establishment of new firms, which is consistent with the Schumpeterian view of creative destruction. Financial development matters. That the financial system is bank-based on market-based offers little additional information.

Suggested Citation

  • Beck, Thorsten & Levine, Ross, 2000. "New firm formation and industry growth - does having a market- or bank-based system matter?," Policy Research Working Paper Series 2383, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2383
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    Cited by:

    1. J Benson Durham, "undated". "Econometrics of the Real Effects of Cross-Border Capital Flows in Emerging Markets," QEH Working Papers qehwps52, Queen Elizabeth House, University of Oxford.
    2. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross & Maksimovic, Vojislav, 2000. "Financial structure and economic development - firm, industry, and country evidence," Policy Research Working Paper Series 2423, The World Bank.
    4. Karjalainen, Pasi, 2008. "R&D investments: The effects of different financial environments on firm profitability," Journal of Multinational Financial Management, Elsevier, vol. 18(2), pages 79-93, April.
    5. Wenwen Sheng & M. C. Sunny Wong, 2017. "Capital Flow Management Policies and Riskiness of External Liability Structures: the Role of Local Financial Markets," Open Economies Review, Springer, vol. 28(3), pages 461-498, July.
    6. Haukioja, Teemu & Hahl, Jarmo, 2001. "The Emergence of the New Economy, and its Challenge to Financial Intermediation and Banking," Discussion Papers 772, The Research Institute of the Finnish Economy.
    7. Inessa Love, 2003. "Financial Development and Financing Constraints: International Evidence from the Structural Investment Model," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 765-791, July.
    8. Ikhide, Sylvanus, 2003. "Was There a Credit Crunch in Namibia Between 1996-2000?," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-22, November.
    9. Ndikumana, Leonce, 2005. "Financial development, financial structure, and domestic investment: International evidence," Journal of International Money and Finance, Elsevier, vol. 24(4), pages 651-673, June.
    10. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2001. "Law, politics, and finance," Policy Research Working Paper Series 2585, The World Bank.
    11. Benson Durham, J., 2002. "The effects of stock market development on growth and private investment in lower-income countries," Emerging Markets Review, Elsevier, vol. 3(3), pages 211-232, September.
    12. Backman, Mikaela, 2013. "Banks and New Firm Formation," Working Paper Series in Economics and Institutions of Innovation 301, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    13. J Benson Durham, "undated". "Econometrics of the Effects of Stock Market Development on Growth and Private Investment in Lower Income Countries," QEH Working Papers qehwps53, Queen Elizabeth House, University of Oxford.
    14. Téllez-León, Isela Elizabeth & Venegas-Martínez, Francisco, 2019. "Determinants of Financial Deepening in Mexico: A Dynamic Panel Data Approach || Determinantes de la Profundad Financiera en México: Un Enfoque de Datos De Panel Dinámico," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 27(1), pages 285-299, June.
    15. Léonce Ndikumana, 2001. "Financial Markets and Economic Development in Africa," Working Papers wp17, Political Economy Research Institute, University of Massachusetts at Amherst.

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