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Banks and new firm formation

Mikaela Backman (Department of Economics, CEnSE (The Centre for Entrepreneurship and Spatial Economics), Jönköping, Sweden.)

Journal of Small Business and Enterprise Development

ISSN: 1462-6004

Article publication date: 16 November 2015

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Abstract

Purpose

The purpose of this paper is to give a nuanced picture of how the local bank sector influences new firm formation and how this differs along the urban-rural hierarchy. Thus, the present paper increases the knowledge concerning the importance of the local bank sector in influencing new firm formation. In this respect, it also sheds light on how banks influence regional growth through their impact on start-ups.

Design/methodology/approach

The empirical design is based on a cross-sectional approach from 2010, where Swedish municipalities are employed as the unit of observation. To overcome a possible endogeneity problem, an instrumental variable approach is applied. A two-stage least squares approach is employed in which instruments for the local bank sector in 2010 are utilised.

Findings

The findings present positive relationships among the average size of the bank branches, independent banks per capita, bank branches per capita, bank competition, and the number of local start-ups in Sweden. Hence, access to financial funds is important for new firm formation. When the sample is divided across the urban-rural hierarchy, differences arise concerning the importance of the local bank sector. Independent banks per capita and bank branches per capita tend to have a larger impact on firm formation in rural municipalities.

Originality/value

This paper is novel in its detailed approach to describing the local bank sector. This topic is important for local and national policy makers, demonstrating the importance of the local bank sector for a growing and healthy regional economy. This study is also the first study on this topic in Sweden.

Keywords

Citation

Backman, M. (2015), "Banks and new firm formation", Journal of Small Business and Enterprise Development, Vol. 22 No. 4, pp. 734-761. https://doi.org/10.1108/JSBED-03-2013-0035

Publisher

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Emerald Group Publishing Limited

Copyright © 2015, Emerald Group Publishing Limited

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