Working Papers

P. Esposito, V. Larocca, M. Messori, M. Mischitelli – Bank-based or Market-based financial sources: Which is better for the EU?

This paper examines the relationships between the financial structure and the economic
performance of non-financial corporations in the European Union (EU). The analysis
covers the 1999-2018 period, thus allowing us to consider both the different cyclical
phases and the process of enlargement of the EU and the Euro Area (EA). We investigate
how the relative weight of market-based and bank-based finance affects the real
performances of non-financial corporations across countries. Our results indicate that
market-based finance is more effective than bank-based finance in supporting the growth
of gross value added and investments of these corporations. Our findings hold when
considering a break for the financial crisis (2008-2009), and are confirmed via a panel
VAR specification. They may suggest a need to pursue a new balance between markets
and intermediaries in the EU and EA by strengthening the role of the non-banking
segments of financial markets.

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