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Banks and Innovation: Microeconometric Evidence on Italian Firms

  • Benfratello, Luigi

    ()

    (University of Naples Federico II)

  • Schiantarelli, Fabio

    ()

    (Boston College)

  • Sembenelli, Alessandro

    ()

    (University of Turin)

In this paper we investigate the effect of local banking development on firms' innovative activities, using a rich data set on innovation for a large number of Italian firms over the 1990's. There is evidence that banking development affects the probability of process innovation, particularly for small firms and for firms in high(er) tech sectors and in sectors more dependent upon external finance. The evidence for product innovation is weaker. There is also some evidence that banking development reduces the cash flow sensitivity of fixed investment spending, particularly for small firms, and that it increases the probability they will engage in R&D.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2032.

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Length: 43 pages
Date of creation: Mar 2006
Publication status: published in:Journal of Financial Economics, 2008, 90 (2), 197 - 217
Handle: RePEc:iza:izadps:dp2032
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