Bank Geographic Diversification and Corporate Innovation: Evidence from the Lending Channel

55 Pages Posted: 30 Apr 2019 Last revised: 28 Aug 2019

See all articles by Saiying Deng

Saiying Deng

Kent State University

Connie X. Mao

Temple University - Fox School of Business and Management; Temple University - Department of Finance

Cong Xia

Central University of Finance and Economics(CUFE), School of Finance

Date Written: December 12, 2018

Abstract

By integrating the staggered interstate bank deregulation into a gravity model following Goetz, Laeven, and Levine (2013, 2016), we construct a time-varying bank-specific instrument for geographic diversification and investigate its causal effect on corporate innovation via the lending channel. We find that bank geographic diversification spurs corporate innovation, and enhances the economic value of innovation. We identify relaxing debt covenants and alleviating borrowers’ financial constraints as the two underlying mechanisms for the documented effects. Moreover, via offering lenient covenants, geographically diversified banks provide greater financial and operational flexibility to borrowing firms, facilitating them to engage in future mergers and acquisitions.

Keywords: bank geographic diversification; innovation; patents; interstate bank deregulation; gravity-deregulation

JEL Classification: G32; G39; G21; G28

Suggested Citation

Deng, Saiying and Mao, Connie X. and Xia, Cong, Bank Geographic Diversification and Corporate Innovation: Evidence from the Lending Channel (December 12, 2018). Available at SSRN: https://ssrn.com/abstract=3339576 or http://dx.doi.org/10.2139/ssrn.3339576

Saiying Deng (Contact Author)

Kent State University ( email )

College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
3306721213 (Phone)

Connie X. Mao

Temple University - Fox School of Business and Management ( email )

416 Alter Hall
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

Cong Xia

Central University of Finance and Economics(CUFE), School of Finance ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
188
Abstract Views
881
rank
204,350
PlumX Metrics