Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 301: Banks and New Firm Formation

Mikaela Backman ()
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Mikaela Backman: Jönköping International Business School, Postal: P. O. Box 1026, SE-551 11 Jönköping, Sweden

Abstract: It is natural to assume that the characteristics of the bank sector are important factors for new firm formation when external capital is needed for establishing new firms. The local bank sector acts as the main provider of financial funds in Sweden since other sources of external capital are limited. In addition, the banking services needed in the start-up process tend to be sensitive to distance and are mainly supplied locally. Thus, the structure of the local bank sector is an important factor that determines the conditions for start-ups. The finding in this paper supports the hypothesis that new firm formation is positively influenced by (1) the average size of the bank branches, (2) number of independent banks and bank branches per capita, and (3) the intensity of competition level. Access to independent banks and bank branches has a stronger influence on start-ups in more rural locations.

Keywords: New firm formation; local bank sector; competition; Sweden

JEL-codes: G21; L26; R11

42 pages, March 15, 2013

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