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Does Bank Lending Intervention Hamper Firm Innovation? Evidence From the Chinese-style Capacity-Reduction Initiative

Author

Listed:
  • Huwei Wen
  • Qiming Zhong
  • Quanen Guo

    (Nanchang University, China)

Abstract

Using the difference-in-differences method, this study investigates the impact of bank lending intervention on firm innovation. We find that bank lending intervention significantly hampers R&D investment of firms in overcapacity industries. Moreover, policy intervention significantly reduces bank lending but increases the firms’ trade credit as well as the financing constraints of firms in overcapacity industries. Furthermore, bank lending intervention reduces the efficiency of credit allocation, an outcome which is attributed to its preference for politically connected firms rather than higher-efficiency ones.

Suggested Citation

  • Huwei Wen & Qiming Zhong & Quanen Guo, 2021. "Does Bank Lending Intervention Hamper Firm Innovation? Evidence From the Chinese-style Capacity-Reduction Initiative," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 1(1), pages 1-6.
    • Handle: RePEc:ayb:jrnael:5
    DOI: 2021/06/27
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    References listed on IDEAS

    as
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    4. Wang, Yizhong & Wei, Yueling & Song, Frank M., 2017. "Uncertainty and corporate R&D investment: Evidence from Chinese listed firms," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 176-200.
    5. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
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    More about this item

    Keywords

    bank lending intervention; r&d investment; credit allocation; overcapacity;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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