Bank Ownership and Firm Innovation
This paper studies the effect of bank ownership on product innovation by borrowing firms, highlighting the role of the state, foreign, and combined foreign-state bank ownership. It uses Enterprise Survey data for more than 22,000 firms in 49 countries from 2016 to 2020, linked to Fitchconnect data on banks: their ownership, soundness indicators, and legal origins. The paper confirms that a firm's access to bank credit is associated with a greater probability of product innovation, even when adjusting for possible reverse causality. If the credit is provided by a state-owned bank, the probability that the borrowing firm will innovate increases. The analysis does not find a similarly positive effect for foreign bank ownership. But when considering the combined effect of foreign state ownership, the results are most statistically and economically significant. Although the results may not be extendable to research and development spending (a key input to innovation), the findings show that foreign state banks can serve as an additional financing vehicle to stimulate radical innovation alongside equity financiers.
| Main Authors: | , , |
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| Format: | Working Paper biblioteca |
| Language: | English English |
| Published: |
World Bank, Washington, DC
2023-06-20
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| Subjects: | FIRM INNOVATION, NEW PRODUCTS AND SERVICES, BANK OWNERSHIP IMPACT ON INNOVATION, STATE OWNED BANKS, FOREIGN BANKS, INTERNATIONAL FINANCE CORPORATION, LEGAL ORIGINS AND BANK STABILITY, RADICAL INNOVATION, |
| Online Access: | http://documents.worldbank.org/curated/en/099515205302312976/IDU0c85603c00c3460462a0b26c056b6774ddfca https://openknowledge.worldbank.org/handle/10986/39896 |
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| Summary: | This paper studies the effect of bank
ownership on product innovation by borrowing firms,
highlighting the role of the state, foreign, and combined
foreign-state bank ownership. It uses Enterprise Survey data
for more than 22,000 firms in 49 countries from 2016 to
2020, linked to Fitchconnect data on banks: their ownership,
soundness indicators, and legal origins. The paper confirms
that a firm's access to bank credit is associated with
a greater probability of product innovation, even when
adjusting for possible reverse causality. If the credit is
provided by a state-owned bank, the probability that the
borrowing firm will innovate increases. The analysis does
not find a similarly positive effect for foreign bank
ownership. But when considering the combined effect of
foreign state ownership, the results are most statistically
and economically significant. Although the results may not
be extendable to research and development spending (a key
input to innovation), the findings show that foreign state
banks can serve as an additional financing vehicle to
stimulate radical innovation alongside equity financiers. |
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