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New firms’ bankruptcy: does local banking market matter?

Author

Listed:
  • Giuseppe Arcuri

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Nadine Levratto

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract
This paper investigates the role of local context, with regard to the effect of local financial development and banking concentration, on a new firm'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 firm'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.

Suggested Citation

  • Giuseppe Arcuri & Nadine Levratto, 2017. "New firms’ bankruptcy: does local banking market matter?," Working Papers hal-04141638, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141638
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141638
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    References listed on IDEAS

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