Product Innovation and Credit Market Disruptions

Abstract

We provide new evidence that disruptions in firms’ access to credit during the Global Financial
Crisis had significant effects on product innovation in the consumer-goods sector. We combine
highly-granular retail-scan data with lending data and we find that credit-constrained firms
introduced fewer new products, those products were less novel, and the new products sold less
well. Overall, these findings suggest that disruptions to credit markets impair firms’ ability to
compete for profits through new-product offerings.

Keywords: Innovation; Multi-Product Firms; Financial Constraints; Great Recession

JEL Classification: G11, G21, G31, G32, L15, L25, O31, O32