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Does credit market impede innovation? Based on the banking structure analysis

Author

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  • Xin, Fu
  • Zhang, Jie
  • Zheng, Wenping

Abstract

This paper asks whether the credit market impede innovation. Using a province- and industry-level innovation dataset combined with regional loan structure in Chinese credit market during 1999-2007, we identify two measures to proxy Chinese banking structure, the long-term vs. short-term bank loans and the Big-Four vs. non-Big-Four banks, which affect technological innovation. We show that industries that are more dependent on external finance exhibit disproportionally higher level of innovation in provinces with a larger share of the long-term bank loan market. However, a larger share of the short-term bank loan market appears to discourage innovation in industries with more dependence on external finance. Moreover, the positive effect of the long-term bank loans on innovation is strengthened in provinces with a higher level of market share of the non-Big-Four banks, whereas the negative effect of the short-term bank loans on innovation is mitigated in those provinces. This study provides evidence on the positive effect of the credit market on innovation.

Suggested Citation

  • Xin, Fu & Zhang, Jie & Zheng, Wenping, 2017. "Does credit market impede innovation? Based on the banking structure analysis," International Review of Economics & Finance, Elsevier, vol. 52(C), pages 268-288.
    • Handle: RePEc:eee:reveco:v:52:y:2017:i:c:p:268-288
    DOI: 10.1016/j.iref.2017.01.014
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    Citations

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    Cited by:

    1. Huang, Zhehao & Liao, Gaoke & Li, Zhenghui, 2019. "Loaning scale and government subsidy for promoting green innovation," Technological Forecasting and Social Change, Elsevier, vol. 144(C), pages 148-156.
    2. Tan, Xiujie & Yan, Yaxue & Dong, Yuyang, 2022. "Peer effect in green credit induced green innovation: An empirical study from China's Green Credit Guidelines," Resources Policy, Elsevier, vol. 76(C).
    3. Ziqin Yu & Xiang Xiao, 2022. "Shadow banking contraction and innovation efficiency of tech-based SMEs-based on the implementation of China’s New Asset Management Regulation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 251-275, June.
    4. Kexian Zhang & Yan Wang & Zimei Huang, 2021. "Do the Green Credit Guidelines Affect Renewable Energy Investment? Empirical Research from China," Sustainability, MDPI, vol. 13(16), pages 1-18, August.
    5. Wen, Jun & Zhang, Sen & Chang, Chun-Ping, 2022. "Legal origins and innovation: Global evidence," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    6. Zhang, Yeqing & Zhang, Xueyong, 2020. "Patent growth and the long-run performance of VC-backed IPOs," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 33-47.
    7. Abderazak Bakhouche, 2022. "Assessing the Innovation-finance Nexus for SMEs: Evidence from the Arab Region (MENA)," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 1875-1895, September.
    8. Shuanglian Chen & Zhehao Huang & Benjamin M. Drakeford & Pierre Failler, 2019. "Lending Interest Rate, Loaning Scale, and Government Subsidy Scale in Green Innovation," Energies, MDPI, vol. 12(23), pages 1-22, November.
    9. Huang, Wei-Chi & Lai, Ching-Chong & Chen, Ping-Ho, 2017. "International R&D funding and patent collateral in an R&D-based growth model," International Review of Economics & Finance, Elsevier, vol. 51(C), pages 545-561.
    10. Zhang, Xiaoqian & Huang, Bin, 2022. "Does bank competition inhibit the formation of zombie firms?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1045-1060.
    11. Fu Xin & Jie Zhang & Yue Guo & Shangkun Liang, 2022. "Banking structure change and corporate innovation: evidence from Chinese city‐branch data," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 2057-2084, April.
    12. Mohammed Shakib, 2023. "Innovation-Export Diversification Nexus in Russian Regions: Does Trade Globalization, Business Potential and Geopolitics Matter?," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 22(4), pages 932-974.

    More about this item

    Keywords

    Bank-centered financial system; Loan term structure; Banking structure; Innovation; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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