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The Effect of Restrictive Bank Lending on Innovation: Evidence from a Financial Crisis

Stefan Kipar

No 109, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: Using unique micro-data on German firms, this paper estimates the effect of restrictive bank lending on innovation. In the German three-pillar banking system, comprised of commercial banks, credit unions, and savings banks, firms were differently affected in their ability to raise external debt during the financial crisis depending on the pillar to which their main relationship bank belonged. Using this institutional feature as an instrument for credit access reveals that restrictive bank lending increases a firm’s probability of discontinuing innovation projects by 21.6 percentage points.

Keywords: Financial crisis; innovation; credit constraints; difference in differences; instrumental variables (search for similar items in EconPapers)
JEL-codes: G01 G21 G30 O16 O30 (search for similar items in EconPapers)
Date: 2011
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