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Bank credit supply and firm innovation behavior in the financial crisis

Marek Giebel and Kornelius Kraft

Journal of Banking & Finance, 2020, vol. 121, issue C

Abstract: We analyze the change in firms’ innovation behavior (short-term adjustment and long-term strategy) in reaction to the credit supply shock to banks in the recent financial crisis 2008/2009. Using a matched bank-firm data set for Germany, we utilize the exogenous variation caused by the interbank market disruptions on credit supply in instrumental variable estimations. Concerning the short-term innovation adjustment in 2009, our results show that (i) current innovation activities, (ii) the initiation of additional innovation and (iii) the reallocation of unused labor resources to the innovation department are affected by the shock to bank financing. We find that the effect is more pronounced for product innovation than for process innovation. Investigating the impact on the long-term innovation strategy in reaction to the crisis, we find that (iv) the sensitivity to adopting any innovation-related strategy to cope with the crisis could not be attributed to the negative bank credit supply shock.

Keywords: Financing of innovation; Credit supply; Financial crisis; Innovation behavior; Firm strategy (search for similar items in EconPapers)
JEL-codes: G01 G21 G30 L20 O16 O30 O31 O32 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jbankfin.2020.105961

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