Bank competition, information specialization and innovation

Tian, L., Han, L. ORCID: https://orcid.org/0000-0002-2778-3338 and Mi, B. ORCID: https://orcid.org/0000-0002-5063-8673 (2020) Bank competition, information specialization and innovation. Review of Quantitative Finance and Accounting, 54 (3). pp. 1011-1035. ISSN 0924-865X doi: 10.1007/s11156-019-00815-6

Abstract/Summary

Complementary to rich existing evidence on bank competition and corporate innovation, this paper aims to investigate the impacts of bank competition on innovation efficiencies, in terms of both R&D input and output at firm level. By acknowledging the role played by information asymmetries in financing innovation, we also examine the moderating effects of information specialization at both industry and firm level on corporate innovation. Analyzing innovation and bank structure data from U.S. between 1992 and 2010, we show novel evidence that increased bank competition improves innovation efficiencies in terms of both R&D input (investment) and output (patents and profits generated by R&D). In addition, we find bank competition has a greater favorable effect on innovation for those firms with more specialized information, such as those operating in an industry with more dispersed productivity growth and those with more concentrated patent types. Overall, our findings support market power hypothesis and banking strategic theory where bank competition improves credit supply to corporate innovation.