Financial crisis , financial constraints of banks , financing of innovation , innovation activity
Abstract:
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.
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