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External Financing Constraints and Firm Innovation

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  • Marek Giebel
  • Kornelius Kraft

Abstract

We investigate the effect of individual banks affected by the recent financial crisis of 2008/2009 on the innovation activities of their business customers. Firms associated with a bank that relies strongly on the interbank market are more likely to be exposed to a credit supply shock during the financial crisis and therefore face external financing constraints. Exploiting both the extensive and the intensive margin, our difference‐in‐differences results imply that those firms which have a business relation to a bank with higher interbank market reliance reduce their innovation activities during the financial crisis to a higher degree than other firms. Tests for additional expenditures reveal that marketing expenditures show a lower or even no sensitivity to bank financing during the financial crisis.

Suggested Citation

  • Marek Giebel & Kornelius Kraft, 2019. "External Financing Constraints and Firm Innovation," Journal of Industrial Economics, Wiley Blackwell, vol. 67(1), pages 91-126, March.
    • Handle: RePEc:bla:jindec:v:67:y:2019:i:1:p:91-126
    DOI: 10.1111/joie.12197
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