Working Paper Series no. 615: Financial Inclusion, Bank Concentration and Firm Performance

Abstract:

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 for 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 to promote firm performance as its overall size.

Lisa Chauvet, Luc Jacolin
December 2016

JEL codes:  G10, O16, O50

Keywords: Financial inclusion, Bank concentration, Firm performance