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Economic policy uncertainty, bank loan, and corporate innovation

Author

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  • Tian, Jing
  • Li, Haiwei
  • You, Pin

Abstract

We explore the impact of EPU on corporate innovation and identify the mediating role of bank loans in the transmission process to better understand the influencing factors of corporate innovation. Based on Chinese listed firms in the manufacturing industry from 2008 to 2018, we discover that heightened EPU is associated with a significant reduction in bank lending and the granted patents of listed firms. In addition, we find direct evidence of the hindering effect of bank loans on granted patents. The adverse effects of EPU and bank loans on corporate innovation are more prominent for non-SOE firms, firms with difficulty accessing external financing, and firms in concentrated industries. The results indicate that the negative relationship between EPU and corporate innovation cannot be attributed to credit contraction. Further research indicates that bank loans may help to facilitate innovation during periods of high EPU due to the positive influence of short-term loans. Our findings contribute to promoting corporate resilience to EPU shocks and facilitating innovation.

Suggested Citation

  • Tian, Jing & Li, Haiwei & You, Pin, 2022. "Economic policy uncertainty, bank loan, and corporate innovation," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:pacfin:v:76:y:2022:i:c:s0927538x22001688
    DOI: 10.1016/j.pacfin.2022.101873
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