We investigate the effect of individual banks’ liquidity shocks during the recent financial crisis of 2008/2009 on the innovation activities of their business customers. Individual banks’ liquidity shocks are identified by the degree of interbank market usage. We use a difference-in-differences approach to identify the effect of interbank reliance during the crisis on total innovation expenditures in comparison to the periods before. Our results imply that those firms which have a business relation to a bank with higher interbank market reliance reduce their innovation activities during the financial crisis to a higher degree than other firms.
Giebel, Marek and Kornelius Kraft (2017), External Financing Constraints and Firm’s Innovative Activities During the Financial Crisis, ZEW Discussion Paper No. 17-064, Mannheim. Download