How Do Credit Market Accessibility and Legal Protection Shape Corporate Innovation?
55 Pages Posted: 11 Nov 2019
Date Written: October 26, 2019
Abstract
We examine the effects of credit market accessibility and legal protection on corporate innovation in a pseudo-multinational setting emphasizing the channels through which the credit market and legal protection affect corporate innovation. Credit market accessibility promotes innovation by alleviating financial constraints through reduced bank loan costs, larger bank loans, and more long-term loans. Legal protection enhances innovation by incentivizing agents to take innovation risk. Consistent with our reasoning, the effects are greater for private enterprises than for state-owned firms. Finally, a horse race suggests that credit market accessibility facilitates innovation more than legal protection does.
Keywords: Credit market accessibility; corporate innovation; financial constraints; legal protection
JEL Classification: O31; G21; K40
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