Description:
We examine the real effect of local financial agglomeration on firms’ financing constraints using a sample of publicly listed firms in China. We adapt principal component analysis to measure the degree of financial industry concentration at the provincial level. The results indicate that firms in regions with higher financial agglomeration have lower financing constraints. Further analysis suggests that firms with high information quality and strong governance mechanisms benefit more from the process of financial agglomeration. Overall, our analysis implies that financial agglomeration has information and monitoring functions that improve the efficiency of financial resource allocation