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Banking deregulation and innovation

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Author Info

  • Chava, Sudheer
  • Oettl, Alexander
  • Subramanian, Ajay
  • Subramanian, Krishnamurthy V.

Abstract

We document empirical support for a key micro-level channel—innovation by young, private firms—through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 109 (2013)
Issue (Month): 3 ()
Pages: 759-774

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Handle: RePEc:eee:jfinec:v:109:y:2013:i:3:p:759-774

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Banking; Innovation; Growth; Young firms; Private firms;

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References

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Citations

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Cited by:
  1. Viral V. Acharya & Zhaoxia Xu, 2013. "Financial Dependence and Innovation: The Case of Public versus Private Firms," NBER Working Papers 19708, National Bureau of Economic Research, Inc.
  2. Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2014. "Banking deregulation, consolidation, and corporate cash holdings: U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 45-56.

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