Diversity in banking and new firm formation. Insights from the Italian local credit markets

This paper empirically investigates the role of bank structural characteristics on firms' creation in the Italian local credit markets from 2009 to 2020. By departing from the existing research, our analysis takes the perspective of the so-called “biodiversity argument” in banking (Ayadi et al., 2009, 2010). As this viewpoint echoes insights from the ecological sciences, we measure bank diversity by retrieving two “biodiversity” indexes: the Gini-Simpson index and, for robustness, the Shannon index. Our results suggest that the coexistence of different institutional models in the banking landscape benefits the formation of new firms – especially those taking the legal form of limited liability companies, as innovative start-ups. We also find that, at the outbreak of the COVID-19 crisis, bank diversity might have mitigated the adverse effects of the pandemic turmoil. Our policy recommendation is that authorities design regulations to encourage institutional variety in the banking market.