Credit Market Development and Firm Innovation: Evidence from the People’s Republic of China

Hua Shang, Quanyun Song and Yu Wu
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Hua Shang: Asian Development Bank Institute
Quanyun Song: Asian Development Bank Institute
Yu Wu: Asian Development Bank Institute

No 649, ADBI Working Papers from Asian Development Bank Institute

Abstract: From the perspective of credit allocation, this paper analyzes the effects of credit market development on the innovative capacities of industrial firms in the People’s Republic of China. Using a large dataset of industrial firms in 31 provinces in the People’s Republic of China, we find that credit market development enhances firms’ product innovation incentives and outcomes. We further show that firms’ credit constraints and firms’ performances are two channels through which credit market development affects innovative capacities of firms. Our results are neither driven by the increase in the quantity of credit, nor by the increase in the number of firms in a province. The results are robust to different samples, different estimation methods, and alternative measures of credit market development.

Keywords: credit market development; credit allocation; firm innovation; product innovation; innovation incentives; innovation outcomes (search for similar items in EconPapers)
JEL-codes: G15 O31 R11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-01-27
New Economics Papers: this item is included in nep-cfn, nep-cna, nep-ent, nep-fdg, nep-ino, nep-tid and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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