Banking Market Structure, Creation and Activity of Firms: Early Evidence for Cooperatives in the Italian Case

Abstract

This paper investigates whether local differences in banking competition impact on the creation and activity of firms, with a special focus on cooperatives. The econometric analysis, implemented on a sample of firms operating in the Italian provinces during the years 1998-2003, reveals non-monotonic effects of bank market power on both firm creation and activity. With regard to the former, a bell-shaped relationship is found for both cooperative and non-cooperative firms, suggesting that a moderately concentrated banking market tends to favour firms' creation, regardless of their legal structure. A less homogeneous pattern emerges for firms' activity rate. Indeed, the relationship between bank market power and firm activity rate continues to assume a bell-shaped form in the case of non-cooperative firms. By contrast, a U-shaped parabola is found for cooperatives, showing that active coops in the market benefit from a relatively more intense banking competition.JEL classification: B 52; G 21; L26; L30.

Bank market power and firm creation: a multi-country analysis

“…As far as other countries are concerned, using Italian data at local credit markets level in the 1990s, Bonaccorsi di Patti and Dell'Ariccia (2004) provide evidence of a bell-shaped relationship between bank market power and firm creation. A similar result is reached by Gagliardi (2009), with Italian data spanning from 1998 to 2003, and by Bergantino and Capozza (2012), for Central and Eastern European transition economies in the period 2000-2007.…”

“…This issue, raised in the debate on the economic role of bank market structure (for some reviews we refer to Cetorelli, 2001;Agostino and Trivieri, 2010), has been addressed by few studies, mainly focusing on single country cases (e.g. Bonaccorsi di Patti and Dell 'Ariccia, 2004;Gagliardi, 2009;Rogers, 2012). Our paper extends the analysis to a multi-country setting, by using data on new firms' formation concerning 106 countries in the period 2004-2011.…”

“…Besides, to capture non-monotonic effects (e.g. Bonaccorsi di Patti and Dell 'Ariccia, 2004;Gagliardi, 2009), Equation (1) includes the squared term of BMP. Whilst CONC3 is a structural measure of bank market power, based on the knowledge of shares and numbers of banks operating in a relevant market, the other ones are non-structural indicators, that convey information on market power employing costs and revenue functions of individual banks, avoiding the potential misspecification of market boundaries.…”

The Influence of the Moral Hazard on the Entrepreneurial Activity

“…Such an attitude from the banks may limit the scale of the process of creating new enterprises. On the other hand, the moderately-concentrated banking market positively affects the creation of new enterprises, as competition between banks reduces the negative phenomena (Gagliardi, 2009). The limitation of investments of financial institutions in the newly created enterprises results from the uncertainty of their future success and from the existing risk of failure (Koski, Pajarinen, 2013).…”

Social Class, Politics, and the Spirit Level: Why Income Inequality Remains Unexplained and Unsolved

“…These recommendations are proposed as egalitarian solutions; however, upon closer scrutiny, these alternatives often are not strong enough in isolation. Past research has shown that cooperatives flourish in contexts where they are institutionally supported by local development banks (21). Employee buy-outs require unique circumstances to originate; in particular, firms must be failing or near closure so that employees can organize to form participatory management schemes.…”