Did Bank Lending Stifle Innovation in Europe During the Great Recession?
Item Type:Working Paper
Citation:Peia, O. & Romelli, D., Did Bank Lending Stifle Innovation in Europe During the Great Recession?, 2019
2019 Peia Romelli Credit and innovation WP.pdf (PDF) 594.9Kb
Using the 2008-09 Global financial crisis and the 2012 Euro area sovereign debt crisis as natural experiments, we investigate the effects of contractions in credit supply on R&D spending in a large sample of European firms. Our identification strategy exploits differences in financial constraints across firms, as well as the cross-industry variation in dependence on external finance, to identify a causal effect of bank credit supply on firm investment in innovation. We show that firms that are more likely financially constrained, in industries more dependent on external finance, have a disproportionally lower growth rate of R&D spending, as well as lower R&D intensity and share of R&D investment in total investment during periods of tight credit supply. These results are robust to different proxies of financial constraints, model specifications and fixed-effects identification strategies.
Type of material:Working Paper
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