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Informed Finance and Technological Conservatism

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  • Raoul Minetti

Abstract

This paper studies an economy in which firms can operate either a mature or a new technology and lenders acquire information on the productive assets of the borrowing firms that are eligible as collateral. We demonstrate that when contracts are imperfectly enforceable informed lenders offer inexpensive funding for the mature technology but may choose not to finance the new one, seeking to preserve the value of their information on the mature assets. Using firm-level data from Italy, we find that banks that establish long-term relationships with firms promote technological progress on average. However, we find that relationship banks inhibit innovations that entail a large depreciation of existing technology-specific information such as radical innovations. Copyright 2010, Oxford University Press.

Suggested Citation

  • Raoul Minetti, 2010. "Informed Finance and Technological Conservatism," Review of Finance, European Finance Association, vol. 15(3), pages 633-692.
    • Handle: RePEc:oup:revfin:v:15:y:2010:i:3:p:633-692
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    File URL: http://hdl.handle.net/10.1093/rof/rfq024
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    Cited by:

    1. Alessandro Giovannini & Maurizio Iacopetta & Raoul Minetti, 2013. "Financial Markets, Banks, and Growth : Disentangling the links," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 105-147.
    2. Laeven, Luc & Popov, Alexander, 2023. "Carbon taxes and the geography of fossil lending," Journal of International Economics, Elsevier, vol. 144(C).
    3. Minetti, Raoul & Murro, Pierluigi & Paiella, Monica, 2015. "Ownership structure, governance, and innovation," European Economic Review, Elsevier, vol. 80(C), pages 165-193.
    4. Christian Haas & Karol Kempa, 2023. "Low-Carbon Investment and Credit Rationing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 86(1), pages 109-145, October.
    5. Aghion, Philippe & Boneva, Lena & Breckenfelder, Johannes & Laeven, Luc & Olovsson, Conny & Popov, Alexander & Rancoita, Elena, 2022. "Financial Markets and Green Innovation," Working Paper Series 2686, European Central Bank.

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