New Firm Formation and Industry Growth: Does Having a Market- or Bank-Based System Matter?
نویسندگان
چکیده
Are market-based or bank-based financial systems better at financing the expansion of industries that depend heavily on external finance? Are marketor bank-based financial systems better at facilitating the formation of new firms? We find evidence for neither the market-based nor the bank-based hypothesis. We find overwhelming evidence that industries that are heavily dependent on external finance grow faster in economies with a higher level of overall financial development and with better legal protection of outside investors. We also find that overall financial development stimulates the establishment of new firms, which is consistent with the Schumpeterian view of creative destruction. While overall financial development matters, having a bank-based or market-based system per se offers little additional information. JEL Classification: G1; G2; O4
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