Banking regulation and corporate R&D investment: Evidence from regulatory penalties in China

Yuanbiao Huang and Jinlei Li

Journal of International Financial Markets, Institutions and Money, 2025, vol. 99, issue C

Abstract: Utilizing data from administrative penalty announcements by the former China Banking and Insurance Regulatory Commission (CBIRC), we analyze the impact of banking regulatory penalties on corporate R&D investment. Our findings indicate that stringent regulatory penalties crowd out corporate R&D investment by reducing the availability of loans and increasing borrowing costs, with a particularly pronounced effect of disciplinary actions and disqualifications, economic penalties, and loan-related penalties. Further analysis reveals that the crowding-out effect is more pronounced among firms with smaller asset sizes and lower internal financing. However, bank competition and international expansion significantly mitigate this crowding-out effect. Additionally, we find that regulatory penalties only crowd out R&D investment within the year following the penalty, with no direct evidence indicating a reduction in patent applications. Our study highlights that rigorous banking regulatory penalties may have a short-term adverse impact on corporate R&D investment, suggesting that regulatory authorities should balance the stability of the financial system with the development of the real economy when enforcing punitive actions.

Keywords: Regulatory penalties; R&D investment; Credit supply; Banking competition; International expansion (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 O31 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:99:y:2025:i:c:s1042443125000022

DOI: 10.1016/j.intfin.2025.102112

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