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Fuel the Engine: Bank Credit and Firm Innovation

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  • Shusen Qi

    (Xiamen University)

  • Steven Ongena

    (Universität Zurich)

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.

Suggested Citation

  • Shusen Qi & Steven Ongena, 2020. "Fuel the Engine: Bank Credit and Firm Innovation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(2), pages 115-147, April.
    • Handle: RePEc:kap:jfsres:v:57:y:2020:i:2:d:10.1007_s10693-019-00316-6
    DOI: 10.1007/s10693-019-00316-6
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    More about this item

    Keywords

    Bank credit; Innovation; Credit registry; Firm growth;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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