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How do banks screen innovative firms? Evidence from start-up panel data

Author

Listed:
  • Brown, Martin
  • Degryse, Hans
  • Höwer, Daniel
  • Penas, María Fabiana

Abstract

Start-up firms often face difficulties in raising external funds. Employing a unique panel dataset covering 9,715 start-up firms over the period 2007-2009, we find that high-tech startups are less likely to use bank finance and face more difficulties in raising bank finance than low-tech start-ups. We find that external credit scores do affect the availability of credit for start-up firms, but that banks rely less on external rating information in their decision making for high-tech start-ups than low-tech start-ups. Start-ups that have their main relation with a small bank use more bank finance and report less difficulties in getting credit. By contrast, a greater expertise of the bank in the firm's industry is not associated with fewer difficulties to get bank loans. There are no differences between high-tech and low-tech start-ups regarding the impact of bank size.

Suggested Citation

  • Brown, Martin & Degryse, Hans & Höwer, Daniel & Penas, María Fabiana, 2012. "How do banks screen innovative firms? Evidence from start-up panel data," ZEW Discussion Papers 12-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  • Handle: RePEc:zbw:zewdip:12032
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    References listed on IDEAS

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    Cited by:

    1. Giorgio Albareto & Roberto Felici & Enrico Sette, 2016. "Does credit scoring improve the selection of borrowers and credit quality?," Temi di discussione (Economic working papers) 1090, Bank of Italy, Economic Research and International Relations Area.
    2. Leandro D�Aurizio & Marco Marinucci, 2013. "Italian firms� innovation strategies in 2008-2010," Questioni di Economia e Finanza (Occasional Papers) 197, Bank of Italy, Economic Research and International Relations Area.
    3. Köhler, Matthias, 2015. "Which banks are more risky? The impact of business models on bank stability," Journal of Financial Stability, Elsevier, pages 195-212.
    4. Höwer, Daniel, 2013. "Corporate main bank decision," ZEW Discussion Papers 13-018, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Blaseg, Daniel & Koetter, Michael, 2015. "Friend or Foe? Crowdfunding Versus Credit when Banks are Stressed," IWH Discussion Papers 8/2015, Halle Institute for Economic Research (IWH).

    More about this item

    Keywords

    Innovation; Start-up; Credit information sharing; Soft information;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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