Abstract
Using a survey of 41,862 manufacturing firms in Indonesia from 2004 through 2013, this study documents that firms in provinces with deeper financial infrastructure exhibit better performance in general. A closer investigation however highlights that such findings are more pronounced for firms with higher financial constraints measured by a low-intensity usage of fixed capital. Moreover, we also highlight that the positive link between financial depth and firm performance only occurs when financial depth at the province level already exceeds a certain level. This paper therefore documents the presence of firm-level and province-level thresholds in the nexus between financial deepening and firm performance. Eventually, this paper advocates the importance of considering the influence of firm-level and province-level conditioning factors, in addition to boosting financial development, in order to improve manufacturing firms’ performance that matters for industrialization process in Indonesia.
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