External Financing Constraints and Firm Innovation

36 Pages Posted: 28 May 2020

See all articles by Marek Giebel

Marek Giebel

Copenhagen Business School - Department of Economics

Kornelius Kraft

University of Dortmund - Department of Economics; IZA Institute of Labor Economics

Date Written: March 2019

Abstract

We investigate the effect of individual banks affected by the recent financial crisis of 2008/2009 on the innovation activities of their business customers. Firms associated with a bank that relies strongly on the interbank market are more likely to be exposed to a credit supply shock during the financial crisis and therefore face external financing constraints. Exploiting both the extensive and the intensive margin, our difference‐in‐differences 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. Tests for additional expenditures reveal that marketing expenditures show a lower or even no sensitivity to bank financing during the financial crisis.

Suggested Citation

Giebel, Marek and Kraft, Kornelius, External Financing Constraints and Firm Innovation (March 2019). The Journal of Industrial Economics, Vol. 67, Issue 1, pp. 91-126, 2019, Available at SSRN: https://ssrn.com/abstract=3609418 or http://dx.doi.org/10.1111/joie.12197

Marek Giebel (Contact Author)

Copenhagen Business School - Department of Economics ( email )

Denmark

Kornelius Kraft

University of Dortmund - Department of Economics ( email )

D-44221 Dortmund
Germany
+49 231 755-3152 (Phone)
+49 231 755-3155 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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