Bank Credit Supply and Firm Innovation
31 Pages Posted: 2 Mar 2018
Date Written: 2018
We analyze the causal effect of the credit supply shock to banks induced by interbank market disruptions in the recent financial crisis 2008/2009 on their business customers’ innovation activity. Using a matched bank-firm data set for Germany, we find that having relations with a more severely affected bank seriously hampers firms’ current innovation activities due to funding shortages. Furthermore, we find that firms with a relationship to a less severely affected bank are more likely to initiate new product and process innovations and to reallocate human resources to innovation during the financial crisis.
Keywords: Financing of innovations, credit supply, financial crisis, innovative activities
JEL Classification: G01, G21, G30, O16, O30, O31
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