Capital Misallocation and Innovation

58 Pages Posted: 5 Dec 2019

See all articles by Christian Schmidt

Christian Schmidt

University of Mannheim

Yannik Schneider

University of Mannheim

Sascha Steffen

Frankfurt School of Finance & Management

Daniel Streitz

Copenhagen Business School

Date Written: November 19, 2019

Abstract

This paper provides empirical evidence suggesting that misallocation of capital distorts competition and impedes innovation and productivity. Using a sample of Spanish firms over the 2010 to 2016 period, we document that industries with more severe misallocation of capital have both lower exit rates of low-type firms and lower entry rates of young and innovative firms. In these industries output declines and concentration increases. Consistent with negative effects associated with a reduction in competition on innovation, we find that capital misallocation depresses patent applications, particularly in high-tech sectors, and industries with neck-and-neck competition.

Keywords: capital misallocation, competition, innovation, productivity

Suggested Citation

Schmidt, Christian and Schneider, Yannik and Steffen, Sascha and Streitz, Daniel, Capital Misallocation and Innovation (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3489801 or http://dx.doi.org/10.2139/ssrn.3489801

Christian Schmidt

University of Mannheim ( email )

L9, 1-2
Mannheim, 68131
Germany

HOME PAGE: http://https://www.bwl.uni-mannheim.de/en/albrecht/team/doctoral-students/schmidt/

Yannik Schneider

University of Mannheim ( email )

Universität Mannheim L9, 1-2
Chair of Finance
Mannheim, 68161
Germany

Sascha Steffen (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Daniel Streitz

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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