Financial crisis, Bank failures and corporate innovation

Salvador Contreras; Amit Ghosh; Joon Ho Kong

doi:10.1016/j.jbankfin.2021.106161

Financial crisis, Bank failures and corporate innovation

Salvador Contreras, Amit Ghosh, Joon Ho Kong

School of Business

Stevens Institute of Technology

Research output: Contribution to journal › Article › peer-review

Abstract

Using firm-level data, we study the impact of bank failures on corporate innovation. We find that exposure to a bank failure reduces the number of patents by 0.34 and citations by 0.35, implying a loss of 21% and 22%, respectively. Such effects are most pronounced for explorative innovation and for firms more dependent on external financing. These effects point to the interdependence between bank failures and corporate decisions, highlighting an important role for government intervention. We show that the TARP helped banks to reduce such pernicious effects on innovation, which is primarily driven by TARP recipient banks headquartered in the county of the bank failure and by large TARP receiving banks.

Original language	English
Article number	106161
Journal	Journal of Banking and Finance
Volume	129
DOIs	https://doi.org/10.1016/j.jbankfin.2021.106161
State	Published - Aug 2021

ASJC Scopus subject areas

Finance
Economics and Econometrics

Keywords

Bank failures
Bank-business relationships
Citations
Panel estimations, R&D expenditure
Patents
TARP funds

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10.1016/j.jbankfin.2021.106161

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title = "Financial crisis, Bank failures and corporate innovation",

abstract = "Using firm-level data, we study the impact of bank failures on corporate innovation. We find that exposure to a bank failure reduces the number of patents by 0.34 and citations by 0.35, implying a loss of 21% and 22%, respectively. Such effects are most pronounced for explorative innovation and for firms more dependent on external financing. These effects point to the interdependence between bank failures and corporate decisions, highlighting an important role for government intervention. We show that the TARP helped banks to reduce such pernicious effects on innovation, which is primarily driven by TARP recipient banks headquartered in the county of the bank failure and by large TARP receiving banks.",

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AB - Using firm-level data, we study the impact of bank failures on corporate innovation. We find that exposure to a bank failure reduces the number of patents by 0.34 and citations by 0.35, implying a loss of 21% and 22%, respectively. Such effects are most pronounced for explorative innovation and for firms more dependent on external financing. These effects point to the interdependence between bank failures and corporate decisions, highlighting an important role for government intervention. We show that the TARP helped banks to reduce such pernicious effects on innovation, which is primarily driven by TARP recipient banks headquartered in the county of the bank failure and by large TARP receiving banks.

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Financial crisis, Bank failures and corporate innovation

Abstract

ASJC Scopus subject areas

Keywords

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