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Financial geographic structure and innovation quality: Evidence from Chinese firms amid economic policy uncertainty

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  • Yue, Hua
  • Wang, Haiyan
  • Jin, Peizhen

Abstract

In countries where indirect financing dominates, the geographic distribution of financial resources to firms is crucial in enhancing credit availability and improving innovation quality. This study examines the impact and heterogeneity of financial geographic structure on firm innovation quality. Using the number of bank branches surrounding Chinese listed companies as a proxy for financial geographic structure, we employ a multidimensional fixed effects model and Heckman's two-stage method, finding that a higher density of bank branches significantly enhances firms’ access to credit. This fosters innovation by increasing invention patent applications in high-tech non-state-owned enterprises and green patent applications in non-high-tech state-owned enterprises. However, as economic policy uncertainty increases, the positive effect of financial geographic structure on firm innovation diminishes. Hence, countries facing substantial policy uncertainty and relying on indirect financing must strengthen multilevel financial markets and encourage commercial banks to provide greater support for firms pursuing higher levels of innovation.

Suggested Citation

  • Yue, Hua & Wang, Haiyan & Jin, Peizhen, 2024. "Financial geographic structure and innovation quality: Evidence from Chinese firms amid economic policy uncertainty," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1370-1380.
    • Handle: RePEc:eee:ecanpo:v:84:y:2024:i:c:p:1370-1380
    DOI: 10.1016/j.eap.2024.10.028
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    More about this item

    Keywords

    Economic policy uncertainty; Financial geographic structure; Innovation quality; Moderating effect;
    All these keywords.

    JEL classification:

    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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