Abstract
The present contribution joins the stream of research investigating the relationship between local financial development, economic growth, and entrepreneurship. Relevant contributions highlighted that the probability of an individual to start a new business is higher when he/she moves from the least financially developed region to the most financially developed one. Indeed, higher levels of local financial development allow for easier access to external funds, which are crucial for the growth of new businesses. In this entrepreneurial context, the need of financial resources is especially relevant for research spin-offs (ROSs), which require significant resources to transfer to the market their innovative technologies. This chapter deepens the role of local financial development on entrepreneurship and, in particular, on research spin-offs. Empirical evidence highlight that at the time of ROSs’ incubation, local financial development does not affect the performance of spin-offs, as they mainly rely on Universities and public contributions. Vice versa, when the RSOs enter the market, they are more in need of funds from the financial system, for which local financial development interestingly becomes strongly relevant to them, affecting corporate performance. Consequently, despite the internationalization of financial markets, policymakers should carefully encourage entrepreneurship through the development of local financial systems.
Highlights
The potential use of external financial resources and the eventual difficulty to access to these resources represent the greatest challenges that a firm must overcome nowadays
A large empirical literature, which begins with the work of King and Levine [2], shows that the development of the financial system is important for the overall economic growth at the country level and directly for firms’ performance [2–4]
Local financial development has a crucial role for the economic growth [2]
Summary
The firm’s success typically depends on a number of internal drivers and external opportunities that can be exploited. Noteworthy contributions argue that the opportunity to start-up a new entrepreneurial activity, where informational opacity is a very relevant driver, is higher in those contexts where the access to external financial market is higher [5], especially when bank competition is strong [7]. Accounting for these stylized facts, this chapter intents to examine the potential effect of local financial development on entrepreneurship, with a particular focus on new high-tech firms, such as research spin-off (RSOs).
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