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Real Effects of Bank Governance: Bank Ownership and Corporate Innovation

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  • Haselmann, Rainer
  • Marsch, Katharina
  • Weder di Mauro, Beatrice

Abstract

In this paper we analyze the impact of government and private ownership of banks on firms’ probability to innovate. We estimate firms’ decision to innovate and their selection of a main lender for a sample of 9000 German manufacturing companies. Since these two decisions may be simultaneously made we use the number of private and government bank branches located in close proximity to our sample firms as an instrument for the selection of each firm’s main lender. We find that the probability of a firm to innovate is about 10 to 13 percent higher if the main lender is a private compared to a government bank (after controlling for firm characteristics and selectivity bias). The ownership type of the main lender is especially important for small firms since their access to finance is more dependent on the local supply of lenders. Therefore, extensive government involvement in the allocation of credit comes at the cost of lower corporate innovation and economic growth.

Suggested Citation

  • Haselmann, Rainer & Marsch, Katharina & Weder di Mauro, Beatrice, 2009. "Real Effects of Bank Governance: Bank Ownership and Corporate Innovation," CEPR Discussion Papers 7488, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7488
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    References listed on IDEAS

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    Cited by:

    1. Oliver Gloede & Ornsiri Rungruxsirivorn, 2013. "Local Financial Development and Household Welfare: Microevidence from Thai Households," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(4), pages 22-45, July.
    2. Sándor Gardó, 2010. "Bank Governance and Financial Stability in CESEE: A Review of the Literature," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 6-31.
    3. Hoewer, Daniel & Schmidt, Tobias & Sofka, Wolfgang, 2011. "An information economics perspective on main bank relationships and firm R&D," ZEW Discussion Papers 11-055, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

    More about this item

    Keywords

    Bank governance; Government ownership; Innovation; Relationship lending;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • K39 - Law and Economics - - Other Substantive Areas of Law - - - Other

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