Unraveling the impact of bank loan spread on corporate innovation: Evidence from China

Yukun Shi and Kairan Zhu

Economic Modelling, 2024, vol. 130, issue C

Abstract: This research explores the innovation dilemmas inherent in large listed companies and state-owned enterprises that are often marred by suboptimal innovation outputs due to a deficiency of intrinsic motivation. It aims to unravel the intricate role of loan spreads as the cardinal influencers of innovation within such entities. Dissecting the nuances of loan spreads the disparity between corporate bank loan rates and the benchmark rate set by the People’s Bank of China reveals that alterations in loan spreads directly influence firms’ inclinations to launch high-risk, high-reward innovative ventures by manipulating investment trajectories through cash flow modifications. The empirical findings corroborate that ascending loan spreads have a stifling effect on innovation, particularly for firms with high debt or financial leverage.

Keywords: Bank loan; Innovation; Access to finance; Economic growth (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:130:y:2024:i:c:s0264999323003711

DOI: 10.1016/j.econmod.2023.106559

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