Banking Deregulation and Innovation

28 Pages Posted: 27 Feb 2013 Last revised: 29 Oct 2015

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Alexander Oettl

Georgia Institute of Technology - Strategic Management Area

Ajay Subramanian

Georgia State University

Krishnamurthy Subramanian

Indian School of Business (ISB), Hyderabad

Date Written: February 22, 2013

Abstract

We document empirical support for a key micro-level channel --- innovation by young, private firms --- through which financial sector deregulation affects economic growth. We find that intrastate banking deregulation, which increased the local market power of banks, decreased the level and risk of innovation by young, private firms. In contrast, interstate banking deregulation, which decreased the local market power of banks, increased the level and risk of innovation by young, private firms. These contrasting effects on innovation also translated into contrasting effects on economic growth. Our study suggests that the nature of financial sector deregulation crucially affects its potential benefits to the real economy.

Keywords: banking, innovation, growth, young firms, private firms

JEL Classification: G28, L43, O31, O43, K23

Suggested Citation

Chava, Sudheer and Oettl, Alexander and Subramanian, Ajay and Subramanian, Krishnamurthy, Banking Deregulation and Innovation (February 22, 2013). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2225526

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://www.prism.gatech.edu/~schava6/

Alexander Oettl (Contact Author)

Georgia Institute of Technology - Strategic Management Area ( email )

Atlanta, GA 30332
United States

Ajay Subramanian

Georgia State University ( email )

Depts. of Finance & Risk Management and Insurance
P.O. Box 4050
Atlanta, GA 30303
United States
404-413-7483 (Phone)

HOME PAGE: http://robinson.gsu.edu/profile/ajay-subramanian/

Krishnamurthy Subramanian

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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