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.

Bibliographic Details

Main Authors:	De Nicola, Francesca, Melecky, Martin, Iootty, Mariana
Format:	Working Paper biblioteca
Language:	English English
Published:	World Bank, Washington, DC 2023-06-20
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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