Capital misallocation and innovation

Schmidt, Christian ; Schneider, Yannik ; Steffen, Sascha ; Streitz, Daniel

Document Type: Conference presentation
Year of publication: 2019
Conference title: Banken-Forschungsworkshop 2019
Location of the conference venue: Münster, Germany
Date of the conference: 08.-09.11.2019
Publication language: English
Institution: Außerfakultäre Einrichtungen > Institut für Versicherungswissenschaft
Business School > ABWL, Risikotheorie, Portfolio Management u. Versicherungswissenschaft (Albrecht)
Subject: 330 Economics
Keywords (English): capital misallocation , competition , innovation , productivity
Abstract: This paper provides empirical evidence suggesting that misallocation of capital distorts competition and impedes innovation and productivity. Using a sample of Spanish firms over the 2010 to 2016 period, we document that industries with more severe misallocation of capital have both lower exit rates of low-type firms and lower entry rates of young and innovative firms. In these industries output declines and concentration increases. Consistent with negative effects associated with a reduction in competition on innovation, we find that capital misallocation depresses patent applications, particularly in high-tech sectors, and industries with neck-and-neck competition.

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