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Thresholds in the nexus between financial deepening and firm performance: Evidence from Indonesia

Wahyoe Soedarmono, Irwan Trinugroho and Bruno S. Sergi

Global Finance Journal, 2019, vol. 40, issue C, 1-12

Abstract: Using a survey of 41,862 manufacturing firms in Indonesia from 2004 through 2013, this study documents that firms in provinces with deeper financial infrastructure exhibit better performance in general; but this is true especially for firms with higher financial constraints (measured by a low-intensity use of fixed capital), and only when financial depth at the province level already exceeds a certain level. That is, this paper documents the presence of firm-level and province-level thresholds in the nexus between financial deepening and firm performance. It is important to consider such conditioning factors, in addition to boosting financial development, in order to improve manufacturing firms' performance and thus industrialization in Indonesia.

Keywords: Financial deepening; Threshold effects; Firm performance (search for similar items in EconPapers)
JEL-codes: O16 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:glofin:v:40:y:2019:i:c:p:1-12