Does Banking Competition Stimulate Entrepreneurship?

Abstract This study investigates how banking competition influences entrepreneurship in China, drawing on a balanced panel of 277 prefecture-level cities from 2004 to 2022. Using city and time fixed-effects models, we find that intensified banking competition significantly promotes entrepreneurial activity. These results are robust across alternative specifications and measures. Further analysis uncovers pronounced regional heterogeneity, with stronger effects in less financially developed western areas, and reveals threshold effects associated with banking competition, urbanization, financial development, and industrial upgrading. A mechanism analysis suggests that banking competition enhances entrepreneurship by easing credit constraints, thereby improving resource allocation, strengthening risk tolerance, and fostering a fairer institutional environment. The findings provide new empirical evidence on the finance–entrepreneurship nexus and offer policy implications for financial market reform.