The impact of banking competition on firm innovation Efficiency: Micro-Level evidence based on financial geographical structure

Shihui Miao

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: This study utilizes data from Chinese A-share listed firms from 2009 to 2023 to construct a geographically based measure of banking competition, providing a systematic evaluation of its impact on firm innovation efficiency. The empirical results reveal an inverted U-shaped relationship between banking competition and innovation efficiency: while moderate levels of banking competition promote innovation efficiency, excessive competition tends to hinder it. Mechanism analysis suggests that banking competition influences innovation efficiency primarily through three channels: easing financing constraints, increasing R&D investment, and enhancing firms' risk-taking capacity. Notably, financing constraints and R&D investment exhibit nonlinear mediating effects, whereas risk-taking operates through a positive linear mechanism. Further heterogeneity analyses indicate that the inverted U-shaped relationship is more pronounced in eastern regions, among firms with higher levels of marketization, and within technology-intensive industries. This study contributes to the literature on the interplay between financial structure and innovation performance, offering both theoretical insights and policy implications for optimizing financial resource allocation and stimulating corporate innovation.

Keywords: Banking competition; Firm innovation efficiency; Inverted U-Shaped relationship; Financial geographical structure (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025006677

DOI: 10.1016/j.iref.2025.104504

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