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How local is local? Evidence from bank competition and corporate innovation in U.S

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  • Lin Tian

    (University of Electronic Science and Technology of China)

  • Liang Han

    (University of Reading)

Abstract

This paper aims to fill in a research gap in the effects of bank competition on corporate innovation. In addition to the evidence on the favorable effects of bank competition on corporate innovation, this paper shows novel evidence on the substitution effects of bank competition in a wider region and neighbor-state to local bank competition in financing corporate innovation activities. In financing innovation, we show ‘how local is local’ depends on the operating scope and information transparency of firms. Local banks have an information advantage over distant banks in financing local businesses and informationally opaque corporate innovation activities. Therefore, improved competition in distant banking markets may have limited ability to substitute the favorable effects of local bank competition in facilitating corporate innovation activities.

Suggested Citation

  • Lin Tian & Liang Han, 2019. "How local is local? Evidence from bank competition and corporate innovation in U.S," Review of Quantitative Finance and Accounting, Springer, vol. 52(1), pages 289-324, January.
    • Handle: RePEc:kap:rqfnac:v:52:y:2019:i:1:d:10.1007_s11156-018-0710-0
    DOI: 10.1007/s11156-018-0710-0
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    2. Wang, Qian & Du, Zhuo-Ya, 2022. "Changing the impact of banking concentration on corporate innovation: The moderating effect of digital transformation," Technology in Society, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Bank competition; Corporate innovation; Substitution; Operating scope; Information transparency;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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