Abstract

http://ssrn.com/abstract=2017928
 
 

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Does Banking Competition Affect Innovation?


Jess Cornaggia


Georgetown University

Yifei Mao


Indiana University - Department of Finance

Xuan Tian


Indiana University - Kelley School of Business

Brian Wolfe


Indiana University

August 15, 2013

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
We exploit the deregulation of interstate bank branching laws to test whether banking competition affects innovation. We find robust evidence that banking competition reduces state-level innovation by public corporations headquartered within deregulating states. Innovation increases among private firms that are dependent on external finance and that have limited access to credit from local banks. We argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations. Therefore, banking competition reduces the supply of innovative targets, which reduces the portion of state-level innovation attributable to public corporations. Overall, these results shed light on the real effects of banking competition and the determinants of innovation.

Number of Pages in PDF File: 49

Keywords: Banking competition, Innovation, Access to finance, External finance dependence, Mergers and acquisitions, Economic growth

JEL Classification: G21, G28, G34, O16, O31

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Date posted: March 8, 2012 ; Last revised: August 16, 2013

Suggested Citation

Cornaggia, Jess and Mao, Yifei and Tian, Xuan and Wolfe, Brian, Does Banking Competition Affect Innovation? (August 15, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2017928 or http://dx.doi.org/10.2139/ssrn.2017928

Contact Information

Jess Cornaggia
Georgetown University ( email )
3700 O Street, NW
Washington, DC 20057
United States
HOME PAGE: http://www.jesscornaggia.com
Yifei Mao
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
Xuan Tian (Contact Author)
Indiana University - Kelley School of Business ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx
Brian Wolfe
Indiana University ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
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