Impact Of Financial Market Development On Firms' Entry And Exit

As important economic activities,firms' entry and exit can help optimize the market structure and improve market efficiency.In practice,firms will encounter many obstacles in the process of entry and exit.Previous studies mostly focus on the specific industry barriers.Based on sorting the existing literature related to firms' entry and exit,this paper found that firms' entry and exit behaviors not only have different performance in the industry level,but at the regional level,the quantities of firms' entry and exit have obvious difference.For a long time,entry and exit barriers on regional level attract relatively less attention,and have not form a unanimous conclusion.Although regional investment environment factors are the important factors that will impact firms'entry and exit,if we try to discover the deeper reasons for regional barriers to entry and exit,such a macroscopic explanation is hard to summarize.Firms' entry and exit can be treated as an a strategic investment decision-making behavior,and it will inevitably have exogenous financing needs.Financial market is just the place of exogenous financing.In the perfect financial market,the banking,securities,insurance market can perform their respective functions.On one hand,the perfect financial market can creat a good investment environment and break the traditional financing bottleneck for firms' entry and exit.On the other hand,the well developed financial market can set up the mechanism of delisting by Multi-level capital market.Multi-level capital market can provide more flexible ways for exit by Innovative systems,such as delisting mechanism and corporate equity trading.Inefficient firms can be merged by effient firms.In this way,Inefficient firms exit the market,and efficient firms enter new industries.Social resources will be better used after reconfiguring.This paper first describes the situation of firms'entry and exit by doing statistical analysis.Based on "China's industrial enterprise database",this paper calculated the quantities of firms,entry and exit of 31 provinces during the year of 1999-2008.Data shows that the quantities of firms' entry and exit are extremely uneven.If ranking the quantities according to the average number of firms' entry and exit,during the 10 years,Jiangsu province,ranked first,the number of firms' entry is more than 133 times of Xizang,ranked the bottom.In the regional distribution of firms' entry and exit,the number of entry and exit tend to keep consistent.The province which get a high number of firms' entry will also enjoy a large quantity of firms' exit.At the same time,The paper also analyzes the history and present situation of our country's financial market development.The development degree of the financial market can be measured by three parts,the commercial bank market,the securities market and insurance market.Through comparing the quantities of firms' entry and exit with financial market development degree,this paper found that the most developed financial market is in Shanghai,guangdong,Beijing,jiangsu,zhejiang,and those provinces are just the provinces which have the largest number of firms' entry and exit.On the contrary,the provinces with low level of financial market have a small number of firms' entry and exit.Through statistical description and analyzing,the development degree of financial market and firms'entry and exit have a certain correlation.Then based on the data of 31 provinces,this paper builds the provincial panel data to do empirical research on the influence of China's financial market development on firms' entry and exit.According to the empirical results,the positive impact of financial market development on firms ' entry and exit can be obviously and centrally reflected on the banking market.The estimated coefficient of securities market indicators in the entry modle is positive,but not significant.At the same time,securities market show a significant negative influence on firms' exit.The estimated coefficient of insurance market indicator is positive,but not significant in both entry and exit modle.The reason is that the development of china's financial market is not so high by the year of 2008.Banking market is the core of the financial markets,and the exogenous financing also mostly rely on indirect financing bank market.Multi-level capital market system has not really established,development degree of securities market is relatively lag.What is more,China's insurance market takes shape in big cities such as Beijing,Shanghai,Guangzhou.But in small and medium-sized cities,the insurance market is still in struggle and financing function is difficult to play.To broaden the scope of research,This paper also studies the interactive relationship between firms'entry and exit.Considering the interation of entry and exit,the influence of financial market on firms' entry and exit remains valid.Besides that,in order to get a more reliable conclusion,this paper also uses the dynamic panel estimation method to estimate the influence of financial market on firms' entry and exit.The results of dynamic panel estimation is consistent with the results of static panel.As available data of firms' entry and exit last only until 2008,this paper use the indicator of netentry to further research.Netentry is not a very accurate indicator for measuring the true activities of firms'entry and exit.So the netentry modle is just for reference.Comprehensive empirical analysis of the relevant conclusions,the paper puts forward policy recommendations.In order to facilitate the entry and exit of firms and improve the efficiency of the market economy,each province should firstly reform the banking system,bring in foreign financial institutions and promote the development of small and medium banks.Secondly,In the premise of complying with the relevant policies,all regions should help promote the establishment of multi-level capital market system,perfect the securities market and rich financing channels and financing methods for firms,entry and exit.The last but not the least,all regions shoule also deepen the development of the insurance market and promote national insurance density and depth.