does financial deepening impact performance of manufacturing firms?

Introduction

The impact of financial deepening on the performance of manufacturing firms has been a subject of extensive research. Financial deepening refers to the increased provision of financial services with a wider choice of instruments and institutions. This synthesis aims to consolidate findings from multiple studies to understand how financial deepening influences the performance of manufacturing firms.

Key Insights

Positive Impact of Financial Inclusion and Deepening:
- Financial inclusion, characterized by the distribution of financial services across firms, positively impacts firm growth, especially in less concentrated banking markets.
- Financial deepening, measured by broad money supply and market capitalization, has a significant positive impact on the performance of manufacturing firms in Nigeria, particularly in the post-financial reforms period.
- In Indonesia, firms in provinces with deeper financial infrastructure exhibit better performance, especially those with higher financial constraints, but only when financial depth exceeds a certain level.
Conditional Impact Based on Financial Constraints and Firm Characteristics:
- Financial market development in China helps relieve the dependence of R&D investment on internal capital, particularly benefiting young firms more than mature ones.
- Financial deepening increases firm performance in Nigeria, but the extent of the impact varies depending on the type of financial inclusion, such as access to overdraft facilities or lines of credit.
Role of Financial Reforms and Market Structure:
- Financial reforms in Nigeria, including financial deepening, domestic credit, and market capitalization, significantly affect the performance of manufacturing firms, enhancing capacity utilization and overall productivity.
- Competitive banking markets favor firm growth at high levels of financial inclusion, while bank concentration benefits foreign and state-owned firms at low levels of financial inclusion.
Threshold Effects and Optimal Financialization:
- There is an inverted U-shaped relationship between corporate financialization and performance, indicating that both too high and too low levels of financialization are detrimental to manufacturing performance.

Conclusion

Financial deepening generally enhances the performance of manufacturing firms by improving access to financial services, fostering firm growth, and supporting innovation. However, the impact is conditional on factors such as the level of financial constraints, firm characteristics, and the type of financial inclusion. Financial reforms and competitive banking markets further amplify these positive effects. Optimal financialization and targeted financial policies are crucial for maximizing the benefits of financial deepening on manufacturing firm performance.

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Does financial deepening impact performance of manufacturing firms?

Summary

Consensus Meter

Introduction

Key Insights

Conclusion

Sources and full results

Financial Inclusion, Bank Concentration, and Firm Performance

Financial inclusion positively impacts firm growth in developing and emerging countries, with more competitive banks favoring growth at high levels of inclusion.

Financial Deepening and the Performance of Manufacturing Firms in Nigeria

Financial deepening positively impacts the performance of manufacturing firms in Nigeria, with money supply and market capitalization having the most significant effects.

Thresholds in the Nexus between Financial Deepening and Firm Performance: Evidence from Indonesia

Deeper financial infrastructure in Indonesian manufacturing firms leads to better performance, especially for those with higher financial constraints, but only when province-level financial depth exceeds certain thresholds.

Search strategy, innovation and financial performance of firms in process industries

Deep search strategies in process industries improve financial performance through product and process innovation, with public institutional knowledge sources having a significant positive impact.

Does development of financial markets help firm innovation? Evidence from China

Financial market development in China helps firms innovate by relieving dependence on internal capital, particularly in young firms, but debt markets still need development and favourable policies for innovative firms.

Bank Financing for SMEs – Lessons from the Literature

Financial deepening can promote growth and poverty alleviation by alleviating SMEs' financing constraints, enabling firm entry and entrepreneurship, and better resource allocation.

A study of the impact of corporate financialization on the performance of listed manufacturing companies

Too high or too low financialization negatively impacts the performance of listed manufacturing companies, suggesting a need for moderate financialization levels and improved supervision.

Exploring Multidimensional Financial Inclusion and Manufacturing Firms Performance in a Developing Country: The Case of Nigeria

Financial inclusion improves the performance of manufacturing firms in Nigeria, but the extent depends on the type of access to bank services.

The effect of manufacturing strategies on financial performance

Increased quality and cost/flexibility in manufacturing strategies positively impact financial performance, while delivery rate has no significant impact.

Financial Reforms in Nigeria and Its Effect on the Performance of Quoted Manufacturing Firms

Financial reforms in Nigeria positively impact the performance of quoted manufacturing firms, but interest rates show no significant effect on performance.

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