Asset Overhang and Technological Change
83 Pages Posted: 29 Aug 2022
Date Written: September 05, 2024
Abstract
Investors face reduced incentives to finance technological change that devalues their legacy investments. We formalize this “asset overhang” and apply our framework to the climate-banking nexus. Leveraging (1) firm-level data on green innovation & diffusion and (2) the sets of product & technology market peers, we implement a shift-share design that identifies banks’ credit facilities impacted by green firm activities. We find that green firms imposing an asset overhang across all lenders are 3 to 7 p.p. more likely to report tight credit supply conditions. The presence of legacy-free investors mitigates the asset overhang problem, thereby facilitating technological change.
Keywords: Financial intermediation, Technological change, Innovation, Diffusion, Credit Rationing, Climate change
JEL Classification: G21, G32, Q54, Q55
Suggested Citation: Suggested Citation