TY - JOUR
T1 - Does banking competition affect innovation?
AU - Cornaggia, Jess
AU - Mao, Yifei
AU - Tian, Xuan
AU - Wolfe, Brian
N1 - Funding Information:
We thank Viral Acharya (our referee), Matthew Billett, Alexander Borisov, Michael Fuerst, Daniel Paravisini, Philip Strahan, Bill Schwert (the editor), Jason Sturgess, Krishnamurty Subramanian, Gregory Udell, and seminar and conference participants at Indiana University, the 2014 Association of Financial Economics meetings, the 2013 Western Finance Association meetings, and the 2012 Financial Management Association meetings for helpful comments. Jess Cornaggia acknowledges financial support from the Anderson Faculty Excellence Fund. Xuan Tian acknowledges research support from the Mary Jane Geyer Cain Faculty Fellowship from Indiana University. All errors belong to the authors.
Publisher Copyright:
© 2014 Elsevier B.V.
PY - 2015/1/1
Y1 - 2015/1/1
N2 - 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.
AB - 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.
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U2 - 10.1016/j.jfineco.2014.09.001
DO - 10.1016/j.jfineco.2014.09.001
M3 - Article
AN - SCOPUS:84915745479
VL - 115
SP - 189
EP - 209
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 1
ER -