Banking diversity and firms' exit: A study on Italian data

With Italian data, this paper investigates the role of institutional banking diversity on firms' exit. Using the Gini-Simpson index, a measure of biodiversity drawn from ecological sciences, we find that banking diversity would have reduced firms' exit rates in the period under investigation (2009-2020), and such a beneficial effect appears sharper for the years of the last financial-sovereign crisis. Both of these findings seem to support the biodiversity argument pioneered by Ayadi et al. (2009, 2010), stating that - beyond the merits of any particular bank institutional model - it is indeed the coexistence of a mix of different credit institutions that matters in favouring the financing of the real economy, especially in a scenario characterized by financial turmoil and uncertainty. As a policy recommendation, authorities should promote regulations that, avoiding bias towards a specific bank model, aim to preserve and promote biodiversity in the banking sector.

Automated summary

This paper examines the impact of institutional banking diversity on firms' exit using data from Italy. The findings suggest that banking diversity can reduce firms' exit rates and this effect is particularly pronounced during financial crises. These results support the argument that a mix of different credit institutions is crucial for promoting real economy financing, especially in times of financial turmoil and uncertainty. The paper recommends promoting regulations that preserve and promote biodiversity in the banking sector.