Financial Inclusion, Bank Concentration, and Firm Performance. (September 2017)

• Record Type: Journal Article
• Authors: Chauvet, Lisa; Jacolin, Luc
• Is Part Of: World development. Volume 97(2017)
• Page Start: 1
• Page End: 13
• Publication Date: 2017-09
• Subjects: financial inclusion -- bank concentration -- firm performance; Economic history -- 1990- -- Periodicals; Economic assistance -- Developing countries -- Periodicals; 330.9
• DOI: 10.1016/j.worlddev.2017.03.018
• Languages: English
• ISSNs: 0305-750X

Abstract

Highlights: We examine the impact of financial inclusion and bank competition on firm performance. The complementarity between the two is assessed using an interaction term. The positive impact of financial inclusion on firm performance is magnified by bank competition. The quality of the banking system is as important in promoting firm performance as its overall size. Summary: This study focuses on the impact of financial inclusion and bank concentration on the performance of firms in developing and emerging countries. Using firm-level data for a sample of 55, 596 firms in 79 countries, we find that financial inclusion, i.e., the distribution of financial services across firms, has a positive impact on firm growth. This positive impact is magnified when bank markets are less concentrated, a proxy for more competition among banks. We also find that more competitive banks favor firm growth only at high levels of financial inclusion, while bank concentration is particularly favorable to foreign and state-owned firms and increases firm growth at low levels of financial inclusion. In countries with limited financial deepening, the quality of the banking system (financial inclusion and bank competition) may be as important in promoting firm performance as its overall size.