Banks and Innovation: Microeconometric Evidence on Italian Firms
43 Pages Posted: 16 Nov 2005
Date Written: March 2006
Abstract
In this paper we investigate the effect of local banking development on firms' innovative activities, using a rich data set on innovation for a large number of Italian firms over the 1990's. There is evidence that banking development affects the probability of process innovation, particularly for small firms and for firms in high(er) tech sectors and in sectors more dependent upon external finance. The evidence for product innovation is weaker. There is also some evidence that banking development reduces the cash flow sensitivity of fixed investment spending, particularly for small firms, and that it increases the probability they will engage in R&D.
Keywords: Banks, Financial Development, Innovation, R&D, Investment
JEL Classification: D24, G21, G38, O31, O33
Suggested Citation: Suggested Citation
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