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Fuel the engine: bank credit and firm innovation


Ongena, Steven; Qi, Shusen (2020). Fuel the engine: bank credit and firm innovation. Journal of Financial Services Research, 57:115-147.

Abstract

Whether bank credit is suitable to finance innovation is a key question. Using a sample of 6422 small firms across 22 emerging economies, we find that a lack of access to credit stifles innovation, especially of the technologically "hard" type. This detrimental impact is stronger in localities or sectors with more dependence on external financing, but only holds for firms that are limited in alternative financing sources. The negative impact is further mitigated by better institutions. Foreign or transactional banks, or banks in more diversified banking markets are better in promoting firm innovation.

Abstract

Whether bank credit is suitable to finance innovation is a key question. Using a sample of 6422 small firms across 22 emerging economies, we find that a lack of access to credit stifles innovation, especially of the technologically "hard" type. This detrimental impact is stronger in localities or sectors with more dependence on external financing, but only holds for firms that are limited in alternative financing sources. The negative impact is further mitigated by better institutions. Foreign or transactional banks, or banks in more diversified banking markets are better in promoting firm innovation.

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4 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:1 April 2020
Deposited On:16 Nov 2020 18:14
Last Modified:16 Nov 2020 18:14
Publisher:Springer
ISSN:0920-8550
OA Status:Closed
Publisher DOI:https://doi.org/10.1007/s10693-019-00316-6
Other Identification Number:merlin-id:17747

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