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Bank competition and firm creation

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Abstract

This paper investigates the empirical relationship between competition in the financial sector and the creation of firms in the non-financial sector. It finds that bank competition has an overall positive effect on firm creation. However, consistent with theories of banking arguing that competition may reduce the availability of credit to informationally opaque firms, it also finds that asymmetric information limits the overall positive effect of bank competition on firm creation. Indeed, bank competition is less favorable to the emergence of new firms in industrial sectors where informational asymmetries are more important, and in extreme cases has a negative effect.
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Suggested Citation

  • Emilia Bonaccorsi di Patti & Giovanni Dell'Ariccia, 2000. "Bank competition and firm creation," Proceedings 680, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhpr:680
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    as
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    More about this item

    Keywords

    Bank competition; Banks and banking; Banking market;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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