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Banking market deregulation and firm innovation: Evidence from foreign bank entry

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  • Shang, Hua
  • Xing, Yanlin

Abstract

This study investigates the impact of banking market deregulation on firm innovation, focusing on foreign bank entry. Exploiting the staggered deregulation of China’s banking sector to foreign banks following its accession to the World Trade Organization, we find a significant positive relationship between foreign bank entry and firm innovation. We further show that foreign bank entry could promote firm innovation directly by providing more and higher-quality banking services to customers, and indirectly by inducing domestic banks to extend more credit to firms with more soft information, enhancing their capacity to support innovative firms, and generating technology spillovers through an increased presence of foreign-invested firms.

Suggested Citation

  • Shang, Hua & Xing, Yanlin, 2025. "Banking market deregulation and firm innovation: Evidence from foreign bank entry," Journal of Banking & Finance, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000913
    DOI: 10.1016/j.jbankfin.2025.107471
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    More about this item

    Keywords

    Banking market deregulation; Foreign bank entry; Firm innovation; Foreign-invested firms; Domestic firms;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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