Financial market integration and the effects of financing constraints on innovation
This paper investigates the effects of financial market integration on firm-level external debt financing and subsequent inventive activities. To this end, I exploit the implementation of the Financial Services Action Plan (FSAP) as a positive exogenous shift integrating European banking markets dur...
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Veröffentlicht in: | Research policy 2024-05, Vol.53 (4), p.104988, Article 104988 |
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Format: | Artikel |
Sprache: | eng |
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Zusammenfassung: | This paper investigates the effects of financial market integration on firm-level external debt financing and subsequent inventive activities. To this end, I exploit the implementation of the Financial Services Action Plan (FSAP) as a positive exogenous shift integrating European banking markets during the 2000s. My findings show that higher integration relaxes financing constraints, with significant positive effects on firms’ use of debt and interest burden, particularly for ex-ante financially constrained firms. Moreover, financial integration spurs innovative activities in terms of patenting of those firms that benefited from the reforms. Considering a variety of qualitative dimensions shows that lifting financing constraints improves patent quality for a subset of previously constrained firms with low ex-ante patenting intensities (entrants) while adversely affecting the inventive output of incumbent patentees in the spirit of a quantity–quality tradeoff. These findings highlight the key function of a conducive financing environment for inventive activities but also reveal unintended limitations of policy-induced improvements in access to financing.
•The Financial Services Action Plan (FSAP) fostered European banking integration.•The FSAP relaxed financing constraints and improved firms’ access to debt.•The increased use of debt stimulated the patenting activities of affected firms.•Incumbent patentees faced a modest quantity–quality tradeoff in patent output.•The results highlight the benefits and unintended consequences respective policies. |
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ISSN: | 0048-7333 1873-7625 |
DOI: | 10.1016/j.respol.2024.104988 |