How Do Credit Market Accessibility and Legal Protection Shape Corporate Innovation?

55 Pages Posted: 11 Nov 2019

See all articles by Danlin Shen

Danlin Shen

China University of Mining and Technology (Beijing)

Carl R. Chen

University of Dayton

Xinyan Yan

University of Dayton

Zhihong Yi

Renmin University of China

Date Written: October 26, 2019

Abstract

We examine the effects of credit market accessibility and legal protection on corporate innovation in a pseudo-multinational setting emphasizing the channels through which the credit market and legal protection affect corporate innovation. Credit market accessibility promotes innovation by alleviating financial constraints through reduced bank loan costs, larger bank loans, and more long-term loans. Legal protection enhances innovation by incentivizing agents to take innovation risk. Consistent with our reasoning, the effects are greater for private enterprises than for state-owned firms. Finally, a horse race suggests that credit market accessibility facilitates innovation more than legal protection does.

Keywords: Credit market accessibility; corporate innovation; financial constraints; legal protection

JEL Classification: O31; G21; K40

Suggested Citation

Shen, Danlin and Chen, Carl R. and Yan, Xinyan and Yi, Zhihong, How Do Credit Market Accessibility and Legal Protection Shape Corporate Innovation? (October 26, 2019). Available at SSRN: https://ssrn.com/abstract=3478362 or http://dx.doi.org/10.2139/ssrn.3478362

Danlin Shen

China University of Mining and Technology (Beijing)

Beijing, Beijing
China

Carl R. Chen

University of Dayton ( email )

300 College Park
Dayton, OH 45469-2251
United States
937-229-2418 (Phone)
937-229-2477 (Fax)

Xinyan Yan (Contact Author)

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Zhihong Yi

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

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