Asset Overhang and Technological Change

Hans Degryse, Tarik Roukny and Joris Tielens

No 17507, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Investors face reduced incentives to finance projects that devalue their legacy investments. We formalize this “asset overhang†and study its drivers. We apply our framework to the climate-banking nexus, where the net-zero transition effectively poses a dilemma for banks: while environmental innovation can be profitable, its widespread dissemination risks disrupting the value of legacy positions. Using granular firm-level data on innovation and diffusion of environmental goods & services, we document the presence of asset overhang as innovators (diffusors) of disruptive environmental technologies are approximately 4.4 p.p. (1.0 p.p) less likely to receive bank credit compared to non-disruptive counterparts. Individual investors with less legacy positions at risk mitigate the economywide asset overhang problem, thereby facilitating technological transition.

Keywords: Financial intermediation; Technological change; Innovation; Diffusion; Credit rationing; Climate change (search for similar items in EconPapers)
JEL-codes: G21 G32 Q54 Q55 (search for similar items in EconPapers)
Date: 2022-07
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