Financial Development and the Growth of Cooperative Firms

The purpose of this paper is to empirically assess the relationship existing between local financial development and the growth of firms, with a special focus on cooperatives. More in detail, the interest is in investigating whether local banking development impacts differently on the growth of cooperative firms, as compared to partnerships and corporations. To pursue this aim, using Italian data, a multiplicative interaction model is specified, so as to allow the impact of local banking development to differ between cooperative and non-cooperative firms. This empirical strategy presents the distinctive advantage of offering a direct test of the hypothesis of institutional complementarity between specific features of banking institutions (i.e. their degree of development) and of firms (i.e. the legal form they assume). The main finding is that although local banking development represents a determinant of firms’ growth, regardless of their legal structure, it plays a special role in boosting the growth of cooperatives: as local banking markets become more developed, cooperatives tend to grow at a rate higher than non-cooperative firms. This result provides, therefore, evidence in favor to the existence of an institutional complementarity relationship between the development of local banking institutions and cooperative firms. JEL classification: B52; G21; L25; L30.