We investigate the effects of competition in the banking sector on the creation of firms in the non-financial sector, explicitly allowing for heterogeneous effects across borrowers characterized by different degrees of asymmetric information. We find evidence of a bell-shaped relationship between bank competition and firm creation. In addition, consistent with models finding that competition may reduce the availability of credit to informationally opaque firms, we find that bank competition is less favorable to the emergence of new firms in industries where information asymmetries are greater.
Published in 2004 in: Journal of Money Credit and Banking, v. 36, 2, pp. 225-251
