Does banking competition affect innovation?

Jess Cornaggia, Yifei Mao, Xuan Tian, Brian Wolfe

Research output: Contribution to journalArticle

123 Scopus citations

Abstract

We exploit the deregulation of interstate bank branching laws to test whether banking competition affects innovation. We find robust evidence that banking competition reduces state-level innovation by public corporations headquartered within deregulating states. Innovation increases among private firms that are dependent on external finance and that have limited access to credit from local banks. We argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations. Therefore, banking competition reduces the supply of innovative targets, which reduces the portion of state-level innovation attributable to public corporations. Overall, these results shed light on the real effects of banking competition and the determinants of innovation.

Original languageEnglish (US)
Pages (from-to)189-209
Number of pages21
JournalJournal of Financial Economics
Volume115
Issue number1
DOIs
StatePublished - Jan 1 2015

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All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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