Capital misallocation and innovation

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

Document Type: Conference presentation
Year of publication: 2019
Conference title: Christmas Meeting of the German Economists Abroad GEA 2019
Location of the conference venue: Frankfurt, Germany
Date of the conference: 20.-21.12.2019
Publication language: English
Institution: Business School > ABWL, Risikotheorie, Portfolio Management u. Versicherungswissenschaft (Albrecht 1989-2021)
Außerfakultäre Einrichtungen > Institut für Versicherungswissenschaft
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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