IDEAS home Printed from https://ideas.repec.org/p/ris/msuecw/2020_013.html
   My bibliography  Save this paper

Finance and Innovation in the Production Network

Author

Listed:
  • Brancati, Emanuele

    (University of Rome, La Sapienza)

  • Minetti , Raoul

    (Michigan State University, Department of Economics)

  • Zhu, Susan Chun

    (Michigan State University, Department of Economics)

Abstract

Disruptions of the production network, such as that triggered by the 2020 global crisis, can spill over to firms’ financing and investment processes. This paper studies the role of the production network in the nexus between finance and investment in innovation. Using matched firm-bank data on 25,000 Italian businesses over the 2011-2017 period, we find that firms’ participation in supply chains significantly attenuates the negative effect of bank credit constraints on innovation. A disruption of 25% of the supply chain linkages is predicted to magnify the impact of credit constraints on innovation by about 17%. The support of supply chains to credit constrained innovators reflects not only liquidity pooling in supply chains but also the substitution of liquidity-intensive innovations with transfers of knowledge along R&D-oriented chains. The support fails however to materialize for radical innovations.

Suggested Citation

  • Brancati, Emanuele & Minetti , Raoul & Zhu, Susan Chun, 2020. "Finance and Innovation in the Production Network," Working Papers 2020-13, Michigan State University, Department of Economics.
    • Handle: RePEc:ris:msuecw:2020_013
    as

    Download full text from publisher

    File URL: http://econ.msu.edu/repec/wp/WPmsu.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Balduzzi, Pierluigi & Brancati, Emanuele & Schiantarelli, Fabio, 2018. "Financial markets, banks’ cost of funding, and firms’ decisions: Lessons from two crises," Journal of Financial Intermediation, Elsevier, vol. 36(C), pages 1-15.
    2. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 87-117.
    3. Philippe Aghion & John Van Reenen & Luigi Zingales, 2013. "Innovation and Institutional Ownership," American Economic Review, American Economic Association, vol. 103(1), pages 277-304, February.
    4. Yuriy Gorodnichenko & Jan Svejnar & Katherine Terrell, 2010. "Globalization and Innovation in Emerging Markets," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 194-226, April.
    5. Herrera, Ana María & Minetti, Raoul, 2007. "Informed finance and technological change: Evidence from credit relationships," Journal of Financial Economics, Elsevier, vol. 83(1), pages 223-269, January.
    6. Petersen, Mitchell A & Rajan, Raghuram G, 1997. "Trade Credit: Theories and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 661-691.
    7. Sarah Holton & Martina Lawless & Fergal McCann, 2013. "SME Financing Conditions in Europe: Credit Crunch or Fundamentals?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 225(1), pages 52-67, August.
    8. Esther Ann Bøler & Andreas Moxnes & Karen Helene Ulltveit-Moe, 2015. "R&D, International Sourcing, and the Joint Impact on Firm Performance," American Economic Review, American Economic Association, vol. 105(12), pages 3704-3739, December.
    9. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1051-1099.
    10. 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.
    11. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    12. Johan Hombert & Adrien Matray, 2018. "Can Innovation Help U.S. Manufacturing Firms Escape Import Competition from China?," Journal of Finance, American Finance Association, vol. 73(5), pages 2003-2039, October.
    13. 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.
    14. Philippe Aghion & Stephen Bond & Alexander Klemm & Ioana Marinescu, 2004. "Technology and Financial Structure: Are Innovative Firms Different?," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 277-288, 04/05.
    15. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
    16. Teresa C. Fort, 2017. "Technology and Production Fragmentation: Domestic versus Foreign Sourcing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 650-687.
    17. Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2014. "Financial development and innovation: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 112(1), pages 116-135.
    18. 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, February.
    19. Robert E. Carpenter & Bruce C. Petersen, 2002. "Capital Market Imperfections, High-Tech Investment, and New Equity Financing," Economic Journal, Royal Economic Society, vol. 112(477), pages 54-72, February.
    20. Raghuram G. Rajan & Luigi Zingales, 2001. "Financial Systems, Industrial Structure, and Growth," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 17(4), pages 467-482.
    21. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
    22. Se-Jik Kim & Hyun Song Shin, 2012. "Sustaining Production Chains through Financial Linkages," American Economic Review, American Economic Association, vol. 102(3), pages 402-406, May.
    23. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Minetti, Raoul & Murro, Pierluigi & Peruzzi, Valentina, 2022. "Out of sight, out of mind? Global chains, export, and credit allocation in bad times," Working Papers 2022-2, Michigan State University, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Çağatay Bircan & Ralph De Haas, 2020. "The Limits of Lending? Banks and Technology Adoption across Russia," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 536-609.
    2. Shusen Qi & Steven Ongena, 2020. "Fuel the Engine: Bank Credit and Firm Innovation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(2), pages 115-147, April.
    3. Giacinto Micucci & Paola Rossi, 2017. "Financing R&D investments: an analysis on Italian manufacturing firms and their lending banks," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 23-49, March.
    4. Silvia Magri, 2014. "Does issuing equity help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(8), pages 825-854, November.
    5. Erhan Artuc & Paulo Bastos & Bob Rijkers, 2020. "Robots, Tasks, and Trade," Working Papers REM 2020/0118, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    6. Marc J. Melitz & Stephen J. Redding, 2021. "Trade and innovation," CEP Discussion Papers dp1777, Centre for Economic Performance, LSE.
    7. Cilekoglu, Akin A. & Moreno, Rosina & Ramos, Raul, 2024. "The impact of robot adoption on global sourcing," Research Policy, Elsevier, vol. 53(3).
    8. Mare,Davide Salvatore & De Nicola,Francesca & Miguel Liriano,Faruk, 2021. "Financial Structure and Firm Innovation : Evidence from around the World," Policy Research Working Paper Series 9670, The World Bank.
    9. Chen Lin & Sibo Liu & Lai Wei, 2023. "Banking and innovation: a review," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 21(1), pages 143-176, January.
    10. Yano, Go & Shiraishi, Maho, 2020. "Finance, institutions, and innovation activities in China," Economic Systems, Elsevier, vol. 44(4).
    11. Bechlioulis, Alexandros & Economidou, Claire & Karamanis, Dimitrios & Konstantios, Dimitrios, 2023. "How important are capital controls in shaping innovation activity?," Journal of International Money and Finance, Elsevier, vol. 131(C).
    12. Stefan Kipar, 2012. "Determinants of Firm Innovation - Evidence from German Panel Data," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 45.
    13. Silvia Magri, 2014. "Does issuing equities help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Temi di discussione (Economic working papers) 978, Bank of Italy, Economic Research and International Relations Area.
    14. Auboin, Marc & Koopman, Robert & Xu, Ankai, 2021. "Trade and innovation policies: Coexistence and spillovers," Journal of Policy Modeling, Elsevier, vol. 43(4), pages 844-872.
    15. Ufuk Akcigit & Sina T. Ates & Giammario Impullitti, 2018. "Innovation and Trade Policy in a Globalized World," NBER Working Papers 24543, National Bureau of Economic Research, Inc.
    16. Pascal L. Ghazalian & Ali Fakih, 2017. "R&D and Innovation in Food Processing Firms in Transition Countries," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(2), pages 427-450, June.
    17. Ana Maria Santacreu & Liliana Varela, 2018. "Innovation and the Patterns of Trade: A Firm-Level Analysis," 2018 Meeting Papers 303, Society for Economic Dynamics.
    18. Edoardo Ferrucci & Roberto Guida & Valentina Meliciani, 2021. "Financial constraints and the growth and survival of innovative start‐ups: An analysis of Italian firms," European Financial Management, European Financial Management Association, vol. 27(2), pages 364-386, March.
    19. Moshirian, Fariborz & Tian, Xuan & Zhang, Bohui & Zhang, Wenrui, 2021. "Stock market liberalization and innovation," Journal of Financial Economics, Elsevier, vol. 139(3), pages 985-1014.
    20. Reto Foellmi & Stefan Legge & Alexa Tiemann, 2021. "Innovation and trade in the presence of credit constraints," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1168-1205, November.

    More about this item

    Keywords

    Banks; Financial Constraints; Innovation; Supply Chains;
    All these keywords.

    JEL classification:

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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:msuecw:2020_013. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dean Olson III (email available below). General contact details of provider: https://edirc.repec.org/data/edmsuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.