New firmsâ€™ bankruptcy: does local banking market matter?
Giuseppe Arcuri and
No 2017-31, EconomiX Working Papers from University of Paris Nanterre, EconomiX
This paper investigates the role of local context, with regard to the effect of local financial development and banking concentration, on a new firmâ€™s probability of bankruptcy. Our empirical setting is based on the Logit Multilevel Model that better allows the treatment of data referring to different levels of aggregation (firm and local variables) applied to new firms located in Italian provinces. We find that a higher level of financial development in a province decreases the likelihood of a new firmâ€™s bankruptcy. This result is robust considering a 2SLS regression in which we use instruments for the local financial development and for the concentration of bank branches. In addition, our estimations suggest that the effect of local financial development and bank concentration is shaped by size. Local financial development is particularly significant for small start-ups, which traditionally suffer from great difficulty in accessing credit, whereas local banking concentration reduces the probability of bankruptcy for large, new firms.
Keywords: Probability of bankruptcy; new firms; multilevel model; local banking structure (search for similar items in EconPapers)
JEL-codes: C26 C30 M13 R11 (search for similar items in EconPapers)
Pages: 29 pages
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-ent, nep-eur, nep-geo and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2017-31
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