EXPLORING THE ROLE OF FINANCIAL DEVELOPMENT IN ENTREPRENEURIAL GROWTH A QUALITATIVE STUDY OF CREDIT ACCESS AND NEW BUSINESS FORMATION
Abstract
This study aims to examine the effect of financial development on entrepreneurial growth by analyzing the relationship between financial development, new business formation and entrepreneurial entry across countries. The analysis is conducted using a quantitative research design, which is cross-country and based on data, using a dataset of 4,879 country-period records from 122 countries, with 1,262 complete observations from 119 countries retained for inferential analysis. Domestic credit provided by the financial sector was used to track financial development and the number of new limited companies and the new entry rate were used to track entrepreneurial growth. Growth of GDP was added as a control variable. Descriptive statistics, Pearson correlation, country-level comparisons and multiple linear regression were used. The results indicate that domestic credit was positively related to new company formation as well as to the new entry rate for limited companies. Further, regression analysis showed that domestic credit had a significant influence on both entrepreneurial outcomes, with a stronger explanatory relationship for the new entry rate. The absolute number of new companies was not statistically related to any change in GDP growth, while there was a slight positive relationship between GDP growth and new entry rate. In general, the results indicate that better financial systems and more credit facilitate business entry and the development of formal businesses, and that financing and financial intermediation for SMEs should be strengthened.
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