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Finance and Innovation in the Production Network

Emanuele Brancati, Raoul Minetti and Susan Chun Zhu ()
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Emanuele Brancati: University of Rome, La Sapienza
Susan Chun Zhu: Michigan State University, Department of Economics, Postal: Department of Economics, Michigan State University, 110 Marshall-Adams Hall, 486 W. Circle Dr., East Lansing, MI 48824

No 2020-13, Working Papers from Michigan State University, Department of Economics

Abstract: Disruptions of the production network, such as that triggered by the 2020 global crisis, can spill over to firms’ financing and investment processes. This paper studies the role of the production network in the nexus between finance and investment in innovation. Using matched firm-bank data on 25,000 Italian businesses over the 2011-2017 period, we find that firms’ participation in supply chains significantly attenuates the negative effect of bank credit constraints on innovation. A disruption of 25% of the supply chain linkages is predicted to magnify the impact of credit constraints on innovation by about 17%. The support of supply chains to credit constrained innovators reflects not only liquidity pooling in supply chains but also the substitution of liquidity-intensive innovations with transfers of knowledge along R&D-oriented chains. The support fails however to materialize for radical innovations.

Keywords: Banks; Financial Constraints; Innovation; Supply Chains (search for similar items in EconPapers)
JEL-codes: G21 O30 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2020-09-08
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-eur, nep-fdg, nep-ino, nep-net and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:ris:msuecw:2020_013

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