Does Bank Competition Spur Firm Innovation?

33 Pages Posted: 22 May 2019

Date Written: January 11, 2018


This article contributes to the literature by examining how the increase in bank competition impacts firms’ innovation and how firm size and firm ownership impact the effect of bank competition. Using data which includes the banking sector and firm information across Chinese prefecture-level city over the period 1998-2011. The robust evidence shows that bank competition improves firm-level innovation by firms headquartered within competing regions and find that the positive effect of bank competition is stronger for small and medium-sized enterprises (SMEs), non-state-owned enterprises (non-SOEs) and domestically-owned firms compared to large firms, SOEs, and foreign-owned firms, respectively. We also find that bank competition poses more beneficial effects on innovative performance for firms with more opaque, more dependent on external financing, high debt cost, and short operating years. Overall, these results provide light on the determinants of innovation and the real effects of bank competition.

Keywords: Bank competition; Firm innovation; SMEs; SOEs

JEL Classification: G21; O30; L25

Suggested Citation

Liu, Peisen, Does Bank Competition Spur Firm Innovation? (January 11, 2018). Available at SSRN: or

Peisen Liu (Contact Author)

Southwest University ( email )

College of Economics and Management
Chongqing, Chongqing 400715

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