International Linkage, Bank Financing, and Firm Innovation

Abstract

In this study, I explore the role of international bank linkages on firm innovation. I find robust evidence that borrowing from international-linked banks leads firms to become more innovative, in terms of both quantity and quality of innovation outcomes. Firms experience larger innovation gains borrowing more intensively from familiar international-linked banks and have higher growth opportunities in general. I argue that international bank linkages help connected banks share information and screen firms with higher innovation qualities, allowing additional credits available to higher-quality firms in conducting more innovation activities. Overall, the results shed light on the real effects of international bank linkages and the underlying determinants of innovations.