Relationship Lending and Firm Innovativeness

Abstract

This study investigates the effects of relationship lending on firm innovativeness using a panel of Italian manufacturing firms. In order to disentangle the impact of bank ties on the discovery phase from that in the introduction phase of new technologies, the analysis proceeds in two steps, estimating two distinct equations for each phase. As there are conflicting theoretical predictions on the effects of the various sources of funding in the different stages of the innovative process, this study provides results for small and high-tech firms, so as to account for firm heterogeneity. Results suggest that for small firms, banks do not carry out an intervention at the stage of development of new technologies, playing their traditional role of financing investments of constrained firms. Differently, relationship banks do play an important role in both phases for high-tech firms.

Relationship lending and innovation: empirical evidence on a sample of European firms

“…They also find that the length of the credit relationship fosters the introduction and acquisition of new technologies rather than internal research. Giannetti (2012) focuses on the time dimension and the exclusivity dimension (number of banking relationships and share of the main bank) and find that longer relationships and a higher share of the main bank have a positive impact on the capacity of high-tech small firms to innovate, in both the 'discovery phase' (extensive margin) and the 'introduction phase' (intensive margin), while this is not the case for all small firms. Micucci and Rossi (2013) focus on the time dimension and the exclusivity dimension (credit concentration measured by the Herfindahl concentration index of bank debt among all lending banks) and find that longer relationships positively affect both the propensity and the intensity of R&D activities, while credit concentration has a negative effect on the probability to carry out R&D (it has no significant effect on the intensity).…”

Is there a nonlinear economic threshold effect of financial development on the efficiency of sci‐tech innovation? An empirical test from the Yangtze River Economic Belt

“…Therefore, improved competition in distant banking markets may have limited ability to substitute the favorable effects of local bank competition in facilitating corporate innovation activities. Giannetti (2012) investigated the effects of bank relationship lending on firm innovativeness using a panel of Italian manufacturing firms and reported that the banks do play an important role in innovation phases for high‐tech firms. Based on the special background of the financial crisis, Giebel and Kraft (2020) used a matched bank‐firm data set for Germany, analyzed the change in firms' innovation behavior in reaction to the credit supply shock to banks in 2008, and pointed that the slowing down of technology innovation to cope with the crisis could not be solely attributed to the negative bank credit supply shock.…”

The Impact of Cash-Flow and the Main Components of the Capital Structure on Innovative Performances of European Firms

“…Firms' innovative activity has been observed over the years [2007][2008][2009], while data on capital structure and other firm characteristics have been collected at the beginning of the observation period. We consider as innovative, those firms that have carried out product or process innovations (as in Magri, 2009;Giannetti, 2012;Cosci et al, 2015), as well as those that have succeeded in patenting. As highlighted in Cosci et al (2015), this strategy has the advantage of capturing innovations that may occur even in absence of formalized R&D projects.…”