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The Effect of Restrictive Bank Lending on Innovation: Evidence from a Financial Crisis

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Listed author(s):
  • Stefan Kipar

Abstract

Using unique micro-data on German firms, this paper estimates the effect of restrictive bank lending on innovation. In the German three-pillar banking system, comprised of commercial banks, credit unions, and savings banks, firms were differently affected in their ability to raise external debt during the financial crisis depending on the pillar to which their main relationship bank belonged. Using this institutional feature as an instrument for credit access reveals that restrictive bank lending increases a firm’s probability of discontinuing innovation projects by 21.6 percentage points.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-Ifo_Working_Papers/wp-ifo-2011/IfoWorkingPaper-109.pdf
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Paper provided by ifo Institute - Leibniz Institute for Economic Research at the University of Munich in its series ifo Working Paper Series with number Ifo Working Paper No. 109.

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Date of creation: 2011
Handle: RePEc:ces:ifowps:_109
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Keywords: Financial crisis; innovation; credit constraints; difference in differences; instrumental variables;

Find related papers by JEL classification:

  • G01 - Financial Economics - - General - - - Financial Crises
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G30 - Financial Economics - - Corporate Finance and Governance - - - General
  • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

References listed on IDEAS
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  1. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
  2. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
  3. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
  4. Benfratello, Luigi & Schiantarelli, Fabio & Sembenelli, Alessandro, 2008. "Banks and innovation: Microeconometric evidence on Italian firms," Journal of Financial Economics, Elsevier, vol. 90(2), pages 197-217, November.
  5. Felbermayr, Gabriel J. & Larch, Mario & Lechthaler, Wolfgang, 2012. "Endogenous labor market institutions in an open economy," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 30-45.
  6. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 43-61.
  7. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  8. Yuriy Gorodnichenko & Monika Schnitzer, 2013. "Financial Constraints And Innovation: Why Poor Countries Don'T Catch Up," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1115-1152, October.
  9. Masako Ueda, 2000. "Bank versus venture capital," Economics Working Papers 522, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 333-359.
  11. Alfred SPIELKAMP & Christian RAMMER, 2009. "Financing of innovations – thresholds and options," Management & Marketing, Economic Publishing House, vol. 4(2), Summer.
  12. Bronwyn H. Hall & John van Reenen, 1999. "How Effective are Fiscal Incentives for R&D? A New Review of the Evidence," NBER Working Papers 7098, National Bureau of Economic Research, Inc.
  13. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, 02.
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Cited by:

  1. Christian Seiler, 2012. "The Data Sets of the LMU-ifo Economics & Business Data Center – A Guide for Researchers," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 132(4), pages 609-618.
  2. Maarten de Ridder, 2016. "Investment in Productivity and the Long-Run Effect of Financial Crises on Output," CESifo Working Paper Series 6243, CESifo Group Munich.
  3. Michael Kleemann & Manuel Wiegand, 2014. "Are Real Effects of Credit Supply Overestimated? Bias from Firms' Current Situation and Future Expectations," ifo Working Paper Series Ifo Working Paper No. 192, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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