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Do bank liquidity shocks hamper firms’ innovation?

Spatareanu, Mariana, Manole, Vlad and Kabiri, Ali (2019) Do bank liquidity shocks hamper firms’ innovation? International Journal of Industrial Organization, 67. ISSN 0167-7187

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Identification Number: 10.1016/j.ijindorg.2019.06.002

Abstract

This paper highlights the importance of bank-based finance for the innovation activity of UK firms. It identifies both theoretically and empirically how bank shocks affect firms’ innovation. We develop a theoretical model, and test its predictions using a new matched bank-firm-patent dataset for the UK. We find that bank distress during the 2008 and 2011 crises negatively affected firms’ innovation behavior. After carefully controlling for several potential biases in estimation we find that firms whose relationship banks were distressed not only patented less, but those patents were of lower technological value, less original and of lower quality. The negative effect is significantly larger in the case of small and medium size enterprises (SMEs). We also find that banks’ specialization in financing innovation mitigates the impact of bank distress on innovation.

Item Type: Article
Additional Information: © 2019 Elsevier.
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
H - Public Economics > H1 - Structure and Scope of Government > H10 - General
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L29 - Other
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O30 - General
Date Deposited: 07 Oct 2022 13:33
Last Modified: 01 Nov 2022 09:24
URI: http://eprints.lse.ac.uk/id/eprint/116931

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