Does banking diversity matter on the financial development–entrepreneurship nexus? Evidence from developed and developing countries

Abstract The financial system is crucial in explaining and determining the formation of new enterprises, hence driving economic growth. This study seeks to answer two critical research questions: Is financial development (defined as the number of credit union and cooperative and commercial bank branches per 100,000 inhabitants and 1000 km 2 ) helpful in the formation of new businesses? Is banking diversity (defined as the simultaneous presence of cooperative and commercial bank branches) important in the context of financial development and entrepreneurship? We employ a worldwide heterogeneous unbalanced sample consisting of 51 countries (developed and developing) from 2006 to 2020, considering information about two key types of financial intermediaries: commercial and credit union-cooperative. The empirical evidence, based on three separate estimators (OLS, FE, and IV-H), supports the importance of both financial intermediaries in fostering entrepreneurship, with commercial bank branches having a higher intensity. A battery of sensitivity analyses back up our empirical predictions, shedding light on the importance of policy implications that could be implemented to ensure the growth of the entrepreneurship fabric, as well as igniting a heated debate on the challenges of stimulating economic growth.