The Role of Firm Size in the Effect of Financial Development on Industrial Development in Iran

Many studies have confirmed the acceleration of economic growth through financial development, but just a few studies have discussed the disproportionate effect of financial development on the growth of the firms with different sizes. So the distributional effects of financial development among firms are still unclear. Accordingly, using a dynamic panel model, we have examined the role of small firms in different industries on the effect of financial development on industrial development of Iranian economy. This study has been carried out on 22 industries according to ISIC4 two-digit codes for the period 1383-1393 (Iranian Calendar) using the Generalized Moment Method (GMM). The results of the model confirm that the development of financial intermediaries exerts a positive effect on the industries with a bigger technical share of small firms. In other words, financial development through banking development has a more positive effect on small firms than large firms. This result is not valid for the development of the stock market.