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Credit Market Development and Firm Innovation: Evidence from the People’s Republic of China

Author

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  • Shang, Hua

    (Asian Development Bank Institute)

  • Song, Quanyun

    (Asian Development Bank Institute)

  • Wu, Yu

    (Asian Development Bank Institute)

Abstract

From the perspective of credit allocation, this paper analyzes the effects of credit market development on the innovative capacities of industrial firms in the People’s Republic of China. Using a large dataset of industrial firms in 31 provinces in the People’s Republic of China, we find that credit market development enhances firms’ product innovation incentives and outcomes. We further show that firms’ credit constraints and firms’ performances are two channels through which credit market development affects innovative capacities of firms. Our results are neither driven by the increase in the quantity of credit, nor by the increase in the number of firms in a province. The results are robust to different samples, different estimation methods, and alternative measures of credit market development.

Suggested Citation

  • Shang, Hua & Song, Quanyun & Wu, Yu, 2017. "Credit Market Development and Firm Innovation: Evidence from the People’s Republic of China," ADBI Working Papers 649, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0649
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    credit market development; credit allocation; firm innovation; product innovation; innovation incentives; innovation outcomes;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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