This paper investigates whether financial reforms promote entrepreneurship. Using a panel of 41 developed and developing countries from around the world, we find that financial sector reforms are positively associated with early-stage entrepreneurial activity. In a variety of robustness checks, including a falsification test, we fail to find the evidence that this relationship is driven due to the omission of unobserved, country-specific factors. Investigating the relationship be- tween reforms in different dimensions of the financial sector and entrepreneurship, we find re- forms in directed credit, credit controls, banking supervision, and international capital flows dimensions to be significantly associated with early-stage entrepreneurial activity.
Keywords: Entrepreneurship | Banks | Financial sector reforms | Liberalization | Financial sector regulation

While global uncertainty—measured by the VIX—has proven to be a robust global ‘‘push” factor of international capital flows, there has been no systematic study assessing the role of uncertainty in driving bilateral capital flows. This paper examines the effects of higher country-specific uncertainty on cross-border banking flows using data from the Bank for International Settlements Locational Banking Statistics. The bilateral structure of this data allows disentangling supply factors from demand factors, thereby helping identify the effect of higher uncertainty on cross-border banking flows from other confounding factors. The results of this analysis suggest that: (i) uncertainty in a source country (domestic economy) is both a lender-specific push and pull factor that robustly predicts a decrease in outflows (cross-border lending) and inflows (cross-border borrowing); (ii) the decline in crossborder borrowing is larger than the decline in cross-border lending—that is, the net crossborder position of the banking sector increases; (iii) despite a decline in cross-border bank lending in the absolute sense, the share of cross-border bank lending in total bank lending increases, suggesting a portfolio rebalancing; (iv) this rebalancing occurs only when banks are lending to borrowers in advanced economies, but not to those in emerging market economies
Keywords: Uncertainty | Cross-border banking flows | Stops | Retrenchment | Portfolio rebalancing | Flight-to-safety