Informed Finance and Technological Change: Evidence from Credit Relationships
48 Pages Posted: 4 May 2004
Date Written: April 2004
This paper empirically investigates the effect of "informed finance" on technological change. We argue that the theoretical literature offers conflicting predictions on whether the information of financiers fosters or impedes firms' innovation. Using data from a sample of Italian manufacturing firms, we find that the information of firms' main banks, proxied by the duration of credit relationships, fosters innovation. We also find some evidence that this positive effect is economically and statistically more significant for product than for process innovations. The latter result may signal that the alleged tight secrecy of process innovations exacerbates the negative effects of banks' information on innovation.
JEL Classification: G21, O30
Suggested Citation: Suggested Citation