Year: 2014
Type: article
Abstract: This paper investigates the effects of systemic banking crises on the quantity (amount of investment) and quality (efficiency of investment) of innovation in the corporate landscape.Using the 2007-2008 financial crises as a setting for heightened credit-market friction, we find that firms reduce investment in innovation activities during periods of elevated credit-market friction.However, the decline in innovation spending is disproportionately less for high-tech firms compared to low-tech firms.We show that this is due to the R&D expenditure smoothing by technologically-intensive firms.Despite the across-the-board reduction in innovation spending, we find that indeed innovation quality improves during periods of credit-market disruption.Our results show that a tighter financial constraint induced by credit contraction significantly enhances the efficiency of innovation, particularly for technologically-intensive firms.These results suggest that credit-market conditions are important determinants in understanding the extensive (quantity) and intensive (efficiency) margins of innovation in the business sector.August 28,
Author: Vu Diem Hang Pham
Language: English
Topic: Firm Innovation and Growth
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2222305845