Relationship lending and innovation: empirical evidence on a sample of European firms |
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Authors: | Stefania Cosci Valentina Sabato |
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Affiliation: | 1. Department of Law, LUMSA University of Rome, Via Pompeo Magno 22, 00192 Rome, Italy;2. Department of Economic, Political Sciences and Modern Languages, LUMSA University of Rome, Via Pompeo Magno 22, 00192 Rome, Italy |
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Abstract: | This paper investigates the impact of relationship lending on innovation (the probability to innovate and the intensity of innovation). Using a unique dataset providing detailed information on bank–firm relationships across European firms, we relate different proxies of relationship lending (soft information, long-lasting relationships, number of banks and share of the main bank) to innovation. We find a very strong and robust positive effect of ‘soft-information-intensive’ relationships, a less robust positive effect of long-lasting relationships and a negative effect of credit concentration as measured by the number of banking relationships. We also find that ‘soft-information-intensive’ relationships reduce credit rationing for innovative firms, while long-lasting relationships seem to favour innovation via other relational channels. These results raise some concern on the impact of screening processes based on automatic procedures, as those suggested by the Basel rules, on firms' capability to finance innovative activities in Europe. |
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Keywords: | Relationship lending innovation R& D credit constraints soft information |
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