Banking market deregulation and firm innovation: Evidence from foreign bank entry

Hua Shang and Yanlin Xing

Journal of Banking & Finance, 2025, vol. 176, issue C

Abstract: This study investigates the impact of banking market deregulation on firm innovation, focusing on foreign bank entry. Exploiting the staggered deregulation of China’s banking sector to foreign banks following its accession to the World Trade Organization, we find a significant positive relationship between foreign bank entry and firm innovation. We further show that foreign bank entry could promote firm innovation directly by providing more and higher-quality banking services to customers, and indirectly by inducing domestic banks to extend more credit to firms with more soft information, enhancing their capacity to support innovative firms, and generating technology spillovers through an increased presence of foreign-invested firms.

Keywords: Banking market deregulation; Foreign bank entry; Firm innovation; Foreign-invested firms; Domestic firms (search for similar items in EconPapers)
JEL-codes: F36 G21 O30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000913

DOI: 10.1016/j.jbankfin.2025.107471

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