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.