Cookies?
Library Header Image
LSE Research Online LSE Library Services

The effect of credit rationing on the shape of the competition-innovation relationship

Bena, Jan (2009) The effect of credit rationing on the shape of the competition-innovation relationship. Discussion paper, 629. Financial Markets Group, London School of Economics and Political Science, London, UK.

[img]
Preview
PDF
Download (2MB) | Preview

Identification Number: 629

Abstract

Using a dynamic model of a step-by-step innovation race between financially constrained firms, I study how financial constraints affect innovation activity. The novel theoretical results derive from an analysis of the interaction between the incentive effect of competition on innovation and the effect competition has on the degree of credit rationing. I find that the negative effect of financial constraints on firm- and aggregate-level R&D investment is most pronounced at both high and low levels of competition. These predictions are supported by empirical evidence: The competition-innovation relationship has an inverted-U shape in less financially developed systems relative to the benchmark pattern observed in countries with highly developed financial systems. Innovation-enhancing policies implemented through competition reforms ought to be complemented by promoting financial development.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2008 The Author
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Finance
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 10 Jul 2009 11:32
Last Modified: 27 Feb 2014 15:35
URI: http://eprints.lse.ac.uk/id/eprint/24419

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics