Credit Supply and Corporate Innovation
57 Pages Posted: 15 Mar 2012 Last revised: 2 Oct 2015
Date Written: March 31, 2013
We present evidence that banking development plays a key role in technological progress. We focus on manufacturing firms’ innovative performance, measured by patent-based metrics, and employ exogenous variations in banking development arising from the staggered deregulation of banking activities across US states during the 1980s and 1990s. We find that interstate banking deregulation had significant beneficial effects on the quantity and quality of innovation activities, especially for firms highly dependent on external capital and located closer to entering banks. Furthermore, we find that these results are strongly driven by a greater ability of deregulated banks to geographically diversify credit risk.
Keywords: financial development, banking deregulation, innovation, risk diversification
JEL Classification: G21, G32, O31
Suggested Citation: Suggested Citation