Does Bank Size Matter in Financing Small Business Innovation?
37 Pages Posted: 4 Nov 2013
Date Written: November 2013
Using data at the bank‐firm level for a large sample of small firms collected through the 8th UniCredit Survey conducted in 2011, we investigate the extent to which banks of different size reward more innovative firms, in terms of both access to lending and volume of credit granted. First we find that the status of innovative firm is associated with the possibility of being weakly credit‐rationed, as perceived by surveyed firms, while we do not observe any evidence of banks following strong credit‐rationing strategies. On the contrary, using instrumental variable techniques in order to manage the endogenous nature of innovation, we show that all types of banks reward firms' innovative activities. We also provide evidence that a large internationalized bank more strongly supports product innovation, whereas there is no substantial difference in the extent to which small and large banks provide credit to small firms undertaking process innovations.
Keywords: credit rationing, informed finance, innovative firms
JEL Classification: G21, L25, O31
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