New Firm Formation and Industry Growth: Does Having a Market- or Bank-Based System Matter?

44 Pages Posted: 20 Apr 2016

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: June 2000

Abstract

Do industries that depend heavily on external finance grow faster in market-based or bank-based financial systems? Are new firms more likely to form in a bank-based or a market-based financial system? Beck and Levine 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 or market-based offers little additional information.

This paper - a product of the Financial Sector Strategy and Policy Department - is part of a larger effort in the department to understand the link between financial development and economic growth.

Keywords: Financial Structure, Economic Growth, External Finance

JEL Classification: G1, G2, O4

Suggested Citation

Beck, Thorsten and Levine, Ross Eric, New Firm Formation and Industry Growth: Does Having a Market- or Bank-Based System Matter? (June 2000). World Bank Policy Research Working Paper No. 2383. Available at SSRN: https://ssrn.com/abstract=630753

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Ross Eric Levine

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
377
Abstract Views
1,987
rank
82,047
PlumX Metrics