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Financial Inclusion and Firms performance

Author

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  • Lisa Chauvet

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)

  • Luc Jacolin

    (Banque de France - Banque de France)

Abstract

This study focuses on the impact financial development on the performance of firms in countries with low financial development. Previous studies focusing on financial depth alone find that financial development does not affect, or has a negative effect on, economic growth in developing countries with undersized financial systems. Using firm-level data in panel for a sample of 26 countries, we find that this hypothesis is invalidated if one takes into account not only financial depth but also financial inclusion, i.e. the distribution of access to financial services. Contrary to developed countries where financial inclusion is nearly universal, differences in access to credit among firms help explaining differences in firms perfor- mance. We measure financial inclusion as the share of firms who have access to bank overdraft facilities, or, alternatively, to any external source of financing, at the sectoral level. We find that whereas financial devel- opment does not affect firm performance on average, financial inclusion has a positive effect on firms growth. Where financial inclusion is low, financial development may create crowding out effects in favor of a minority of firms or government that phase out or reverse its expected positive effects of financial development on growth. Additional testing show that these effects affect all firms, irrespective of size, or whether they have access to bank credit or not. We interpret these results as showing that financial deepening increases firms growth only if it widely distributed among firms, i. e. financial inclusion is high.

Suggested Citation

  • Lisa Chauvet & Luc Jacolin, 2015. "Financial Inclusion and Firms performance," Post-Print hal-01516871, HAL.
  • Handle: RePEc:hal:journl:hal-01516871
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01516871
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    File URL: https://hal.archives-ouvertes.fr/hal-01516871/document
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    References listed on IDEAS

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    Cited by:

    1. Uchenna Efobi & Belmondo V. Tanankem & Simplice Asongu & Ibukun Beecroft, 2016. "Exploring Multidimensional Financial Inclusion and Manufacturing Firms Performance in a Developing Country: The Case of Nigeria," Working Papers 16/043, African Governance and Development Institute..
    2. L. Chauvet & H. Ehrhart, 2015. "Aid and Growth. Evidence from Firm-Level Data," Working papers 563, Banque de France.

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