Financial development, government ownership of banks and firm innovation

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

29 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)880-906
Journal / PublicationJournal of International Money and Finance
Volume31
Issue number4
Online published25 Jan 2012
Publication statusPublished - Jun 2012
Externally publishedYes

Abstract

Using a newly-available World Bank survey of over 28,000 firms from 46 countries, we examine how financial development affects firm innovation around the world. We find that while stock market development significantly enhances firm innovation, banking sector development has mixed effects. We show that the latter result can be explained by different levels of government ownership of banks. Specifically, in countries with lower government ownership of banks, banking sector development significantly enhances firm innovation; while in countries with higher government ownership of banks, banking sector development has no significant or sometimes even significantly negative effects on firm innovation. Such negative effects are significantly stronger for smaller firms. The results are robust to various controls such as firms' human capital and ownership structure, to estimations using instrumental variable techniques and alternative measures of firm innovation.

Research Area(s)

  • Finance and growth, Government ownership, Innovation