Relationship Lending and Firm Innovativeness

This study investigates the effects of relationship lending on firm innovativeness using a panel of Italian manufacturing firms. In order to disentangle the impact of bank ties on the discovery phase from that in the introduction phase of new technologies, the analysis proceeds in two steps, estimating two distinct equations for each phase. As there are conflicting theoretical predictions on the effects of the various sources of funding in the different stages of the innovative process, this study provides results for small and high-tech firms, so as to control for firm heterogeneity, relying on both cross-section and panel data techniques. Results suggest that for small firms, banks do not carry out a sophisticated intervention at the stage of development of new technologies, playing their traditional role of financing investments of constrained firms. Differently, relationship banks do play an important role in both phases for high-tech firms.