TY  - GEN
AB  - Empirical evidence shows that innovative firms are often more constrained in obtaining
external funds than less innovative firms. Explanations are based on the uncertain
outcome and high costs of R&D effort. When providing credit, the lender assesses the
creditworthiness of the borrower. She relies on financial data and market analysis. The
financial data analysis reveals costs and the market outlook is linked to the uncertainty
of future profitability. In this paper we examine whether the credit assessment behaviour
of banks hurts firms of a more innovative sector more and how this affects long term
innovative success and economic development. We use an evolutionary approach à la
Nelson and Winter but with two sectors. A bank provides credit and supplies it to single
firms based on a rating. We illuminate the impact of rating process characteristics on the
long term outcome. When the bank does not distinguish for sector-specific features, such
as risk and market outlook, the high-tech sector benefits over-proportionally because the
surviving firms have a high profitability and further innovations are more likely. The way
that the bank forms expectations about the market outlook influences the allocation
of credit between sectors. The innovative sector is supplied more credit if the market
outlook is assessed in a rather conservative fashion. The impact on aggregates however,
is limited because the bank uses other pieces of information as well.
DA  - 2015
DO  - 10.4119/unibi/2915570
KW  - Innovation
KW  - Financial Constraints
KW  - Industrial Evolution
LA  - eng
PY  - 2015
SN  - 2196-2723
SP  - 40-
TI  - The Impact of Credit Rating on Innovation in a Two-sector Evolutionary Model
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29155704
Y2  - 2024-11-25T01:17:30
ER  -