Did bank lending stifle innovation in Europe during the Great Recession?

Oana Peia and Davide Romelli

No 201926, Working Papers from School of Economics, University College Dublin

Abstract: Using the 2008-09 Global Financial crisis and the 2012 Euro area sovereign debt crisis as natural experiments, we investigate the effects of contractions in credit supply on R&D spending in a large sample of European firms. Our identification strategy exploits differences in financial constraints across firms, as well as the cross-industry variation in dependence on external finance, to identify a causal effect of bank credit supply on firm investment in innovation. We show that firms that are more likely financially constrained, in industries more dependent on external finance, have a disproportionally lower growth rate of R&D spending, as well as lower R&D intensity and share of R&D investment in total investment during periods of tight credit supply. These results are robust to different proxies of financial constraints, model specifications and fixed-effects identification strategies.

Keywords: Financial frictions; Investment; Innovation; R&D spending (search for similar items in EconPapers)
JEL-codes: G21 I22 O30 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2019-11
New Economics Papers: this item is included in nep-cfn, nep-fdg, nep-ino, nep-sbm and nep-tid
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http://hdl.handle.net/10197/11198 First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:201926

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