Asset Overhang and Technological Change

90 Pages Posted: 29 Aug 2022

See all articles by Hans Degryse

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Tarik Roukny

Massachusetts Institute of Technology (MIT); KU Leuven - Faculty of Business and Economics (FEB)

Joris Tielens

National Bank of Belgium

Date Written: August 19, 2022

Abstract

Investors face reduced incentives to finance projects that devalue their legacy investments. We formalize this "asset overhang" and study its drivers. We apply our framework to the climate-banking nexus, where the net-zero transition effectively poses a dilemma for banks: while environmental innovation can be profitable, its widespread dissemination risks disrupting the value of legacy positions. Using granular firm-level data on innovation and diffusion of environmental goods & services, we document the presence of asset overhang as innovators (diffusors) of disruptive environmental technologies are approximately 4.4 p.p. (1.0 p.p) less likely to receive bank credit compared to non-disruptive counterparts. Individual investors with less legacy positions at risk mitigate the economywide asset overhang problem, thereby facilitating technological transition.

Keywords: Financial intermediation, Technological change, Innovation, Diffusion, Credit Rationing, Climate change

JEL Classification: G21, G32, Q54, Q55

Suggested Citation

Degryse, Hans and Roukny, Tarik and Roukny, Tarik and Tielens, Joris, Asset Overhang and Technological Change (August 19, 2022). Available at SSRN: https://ssrn.com/abstract=4194892 or http://dx.doi.org/10.2139/ssrn.4194892

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Tarik Roukny

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Joris Tielens (Contact Author)

National Bank of Belgium ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

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