Does Bank Credit Affect Innovation? International Evidence from Collateral Law Reform

Abstract

Exploiting legal reforms that facilitate the use of movable assets as collateral in secured debt transactions, we examine the impact of access to bank credit on corporate innovation. We create a firm-level panel data set on patenting activities for 45,325 firms across 30 European countries from 1992 through 2015. We find that following the legal reforms, firms operating in sectors with more movable assets conduct more innovation activities and with higher quality, as measured by the number of patents, citations, and the number of impactful patents. The effects are stronger among firms that are more financially constrained, and belong to innovative-intensive industries, suggesting that the legal reforms spur innovation by improving access to credit.

Keywords: Corporate Innovation; Collateral Laws; Patents; Access to Credit

JEL Classification: G30; K22; O30; O16