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The Impact of Financial Innovation on Firm Stability

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  • Fabian Kuehnhausen

Abstract

In this paper, I evaluate the impact of competition on firm stability between financial agents who are able to invest in innovations to reap profits. Given a vast array of concerns and interconnections between financial innovations, financial distress of firms and financial crises provided by theoretical assessments, I analyze empirically the causal link between a financial agents' innovativeness and stability. Using a unique data set on financial innovations in the USA between 1990 and 2002, I can show that a larger degree of innovation negatively affects firm stability safe for the underlying firm characteristics. The results are robust against different modifications of innovation measures and against different fragility parameters indicating profitability, activity risk and risk of insolvency.

Suggested Citation

  • Fabian Kuehnhausen, 2014. "The Impact of Financial Innovation on Firm Stability," BIFEC Book of Abstracts & Proceedings, Research and Business Development Department, Borsa Istanbul, vol. 1(2), pages 211-239, March.
    • Handle: RePEc:bor:bifeca:v:1:y:2014:i:2:p:211-239
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Incentives to innovate; Financial Innovation; Fragilit;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G2 - Financial Economics - - Financial Institutions and Services
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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