Fuel the Engine: Bank Credit and Firm Innovation

  • Shusen QiEmail author
  • Steven Ongena


Whether bank credit is suitable to finance innovation is a key question. Using a sample of 6422 small firms across 22 emerging economies, we find that a lack of access to credit stifles innovation, especially of the technologically “hard” type. This detrimental impact is stronger in localities or sectors with more dependence on external financing, but only holds for firms that are limited in alternative financing sources. The negative impact is further mitigated by better institutions. Foreign or transactional banks, or banks in more diversified banking markets are better in promoting firm innovation.


Bank credit Innovation Credit registry Firm growth 

JEL classification

G21 O31 O40 



The authors thank the editor Haluk Ünal and an anonymous referee, Brian Anderson, Gustavo Manso, Donald Siegel, and participants at the 14th China Finance Association Annual Meeting (Shanghai), Maastricht University seminar (Maastricht), and Xiamen University seminar (Xiamen) for useful comments. Special thanks go to the European Bank for Reconstruction and Development for kindly providing us with the data. Shusen Qi would like to acknowledge financial support from National Natural Science Foundation of China (71790601) and Fundamental Research Funds for the Central Universities (20720181028). Steven Ongena acknowledges financial support from ERC ADG 2016 - GA 740272 lending.

Supplementary material

10693_2019_316_MOESM1_ESM.docx (24 kb)
ESM 1 (DOCX 23 kb)


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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of ManagementXiamen UniversityXiamenChina
  2. 2.Institut für Banking und FinanceUniversität ZurichZürichSwitzerland

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