Regional entrepreneurship and the structure of the banking market

Abstract

This paper investigates whether local banking market structure affects regional entrepreneurship, measured by new firm formation. Considering provincial data over the period 2011–21 in Italy, we found that bank concentration and firm formation had an inverted ‘U’-shaped relationship. Lower levels of bank concentration fostered firm formation, but above a market share of about 58% for the largest banks, which is seen in the South and some peripheral and inner areas of central and northern Italy, increased concentration reduced firm formation. However, the presence of local banks is beneficial for the birth of new firms and can reduce the negative impact of high concentration. These findings suggest that banking market structure plays an important role in shaping regional entrepreneurship.