External Financing Constraints and Firm's Innovative Activities During the Financial Crisis
29 Pages Posted: 15 Dec 2017
Date Written: 2017
We investigate the effect of individual banks’ liquidity shocks during the recent financial crisis of 2008/2009 on the innovation activities of their business customers. Individual banks’ liquidity shocks are identified by the degree of interbank market usage. We use a difference-in-differences approach to identify the effect of interbank reliance during the crisis on total innovation expenditures in comparison to the periods before. Our results imply that those firms which have a business relation to a bank with higher interbank market reliance reduce their innovation activities during the financial crisis to a higher degree than other firms.
Keywords: Financial crisis, financial constraints of banks, financing of innovation, innovation activity
JEL Classification: G01, G21, G30, O16, O30, O31
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