Financing new entrepreneurship: Credit or microcredit?

Abstract

Building on the theory of information asymmetry, we investigate the impact of conventional banking versus the impact of microfinance on new entrepreneurship. We use a panel dataset collected from 49 developing countries between 2003 and 2018 and apply a random effects linear regression model with endogenous sample selection. We show, among other results, that conventional banking has no direct impact on new entrepreneurship. In contrast to conventional banking, microfinance appears to promote the growth of new entrepreneurship. However, as the conventional banking sector grows, the positive impact of microfinance on new entrepreneurship diminishes. 2022 Elsevier B.V.