Does banking competition affect innovation?
Xuan Tian and
Journal of Financial Economics, 2015, vol. 115, issue 1, 189-209
We exploit the deregulation of interstate bank branching laws to test whether banking competition affects innovation. We find robust evidence that banking competition reduces state-level innovation by public corporations headquartered within deregulating states. Innovation increases among private firms that are dependent on external finance and that have limited access to credit from local banks. We argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations. Therefore, banking competition reduces the supply of innovative targets, which reduces the portion of state-level innovation attributable to public corporations. Overall, these results shed light on the real effects of banking competition and the determinants of innovation.
Keywords: Banking competition; Innovation; Access to finance; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 O16 O31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:115:y:2015:i:1:p:189-209
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