Does Bank Lending Intervention Hamper Firm Innovation? Evidence From the Chinese-style Capacity-Reduction Initiative

Huwei Wen, Qiming Zhong and Quanen Guo ()
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Quanen Guo: Nanchang University, China

Asian Economics Letters, 2021, vol. 1, issue 1, 1-6

Abstract: Using the difference-in-differences method, this study investigates the impact of bank lending intervention on firm innovation. We find that bank lending intervention significantly hampers R&D investment of firms in overcapacity industries. Moreover, policy intervention significantly reduces bank lending but increases the firms’ trade credit as well as the financing constraints of firms in overcapacity industries. Furthermore, bank lending intervention reduces the efficiency of credit allocation, an outcome which is attributed to its preference for politically connected firms rather than higher-efficiency ones.

Keywords: bank lending intervention; r&d investment; credit allocation; overcapacity (search for similar items in EconPapers)
JEL-codes: G21 O3 (search for similar items in EconPapers)
Date: 2021
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Asian Economics Letters is currently edited by Chun-Ping Chang (Shih Chien University, Taiwan) and Professor Chien-Chiang Lee (Nanchang University, China)

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