Banking Competition, Firm Innovation And Total Factor Productivity

In recent decades,globalization is continuing.An issue about economic growth and development remain unresolved: there is still a large difference on the levels of economic development in different countries.Many theoretical and empirical studies try to find out the factors that hinder the underdeveloped countries from catching up with the developed countries.However,decades of research have not yet completely solved this problem.Moses pointed out that the difference in productivity between different regions made the income gap.China's economy has shifted from the rapidly growing high quality stage of development which means that the transformation of development mode and conversion engine of growth.During this period,the increase in total factor productivity and promoting technological progress are essential to achieving high quality development.The extensive economic growth,which relies on increasing the consumption of material resources,transform into the intensive economic growth,which is mainly dependent on technological innovation,perfect management and high human capital.Achieving high-quality economic growth cannot be inseparable from the driving force of technological progress.Enterprises need sufficient funding for R&D innovation,and higher efficient allocation of financial resources depends on effective financial market operation.Chinese banking competition increased significantly in the past more than 20 years,while the banking competition does not effectively alleviate the financing constraints of small and medium-sized enterprises(SMEs)and non-state-owned enterprises(non-SOEs).International agencies such as the World Bank,the Bank for International Settlements and IMF are encouraging China to support the development of enterprises by effective financial markets.Banking institutions are important component of China's financial markets as the main channel of financing.Therefore,verifying the effect of banking competition on firm innovation and total factor productivity has vital research significance for alleviating capital constraints of SMEs and non-SOEs,promoting the development of high quality and improving the efficiency of capital allocation.Combined with China's realistic background,the following four key questions are proposed: what are the characteristics of China's banking competition trends and status? Is the impact of banking competition on enterprise innovation a function of promoting or hindering? What effect does the mechanism of banking competition have on total factor productivity? How does firms' heterogeneity performance in the influence of banking competition on firm innovation and total factor productivity?Based on the financial structure theory and pecking order theory,this dissertation constructs the theoretical framework of competition-driven firm innovation and total factor productivity.Based on the endogenous growth model of Romer(1990),analyzing the influence of bank competition firm innovation and total factor productivity.Using the banking information of China's prefecture-level cities and the information of China's industrial enterprises database,to investigate the effect of banking competition on firm innovation and total factor productivity.This article also based on the enterprise's heterogeneity,to investigate the direction and intensity of banking competition affecting enterprise innovation and total factor productivity.Finally,the paper proposes policy implications of optimizing banking competition,promoting innovation and promoting high-quality economic growth based on the conclusions.The main conclusions of this paper are as follows:(1)Studies show that that banking competition has a significant impact on corporate finance,corporate innovation,productivity and economic growth.And bank competition effect shows obvious difference in the direction and intensity under the influence of enterprise heterogeneity.It is manifested in the bank's competition to the ability of firm innovation,the inconsistency of the impact of R&D investment and total factor productivity due to the difference of firm size,opacity,ownership,R&D investment and financing constraints.(2)Statistics show that,since the People's Bank of China take the role as the central bank in 1983,the competition in the banking sector has been on the rise.The number of financial institutions of state-owned commercial banks continued to grow,but its share of banking financial institutions showed a declining trend year by year.The concentration of China's banking gradually declined,and the level of banking competition continued to increase.The degree of banking competition has continued to increase over the past 30 years.Especially after 2005,this process has obviously accelerated.Furth more,there is an obvious regional imbalance for the level of banking competition,which is significantly stronger for the central and eastern regions than the western regions.The pace of advancement is also faster than in the central and eastern regions than other regions.(3)Analyzing the effect of financial development on firm innovation and total factor productivity from a theoretical model perspective,and finding that financial development promotes total factor productivity through providing financing for innovative projects,thus promoting R&D investment and technological progress.The rise of small and medium-sized banks market shares and loan-deposit ratio of will be benefit firms to increase their R&D investment,and thus to promote total factor productivity.However,the rise of state-owned banks market shares and the rise of indirect financing ratio will reduce the R&D investment and hinder total factor productivity.(4)Empirical results show that enhancing the degree of banking competition will promote firms' innovation output.This confirms the applicability of the market power hypothesis in China.The effect of banking competition influenced by firm characteristics,such as size,opacity,ownership,R&D investment and financing constraints.The results also reveal that the effect of banking competition on innovation is stronger for SMEs,low-opacity firms,non-SOEs and domestic-owned firms.In addition,the high external financing-dependent firms,high financing cost firms,high research and development expenditure level firms and young firms' innovation ability have benefited more from banking competition.(5)The increase of banking competition and innovation ability will promote the growth of total factor productivity,which influenced by firm size,opacity,ownership and R&D investment.SMEs and non-SOEs are more benefited from this effect than the large enterprises and SOEs,respectively.The positive of effect of banking competition is more significant for low-opacity firms and high R&D expenditure firms.Therefore,it is an effective way to promote economic growth and increase the efficiency of capital distribution through enhancing the degree of banking competition.The possible innovations of the thesis include the following aspects:First,based on a new prospective to analyze the impact mechanism of banking competition on firm innovation and total factor productivity.Many researches focus on the study of financial development and economic growth,while failing to explain the dilemma of firm development in the real economy,such as "small size and insufficient collateral financing,high financing constraints and high debt cost,low innovation ability,low profitability,small size".Based on the financial structure theory and pecking order theory,this paper investigates the internal mechanism of "banking competition-firm financing-R&D innovation-total factor productivity” from the perspective of banking competition affecting firm financing.The article also explores the impact of banking competition on firm innovation and total factor productivity,and a new path of economic high quality growth through improving banking competition.This paper verifies the applicability of the market power hypothesis and information hypothesis in our China and expands the mechanism of the relationship between banking competition and firm innovation and total factor productivity.In addition,this paper confirmed the importance of enhancing banking competition to promote corporate innovation and ensure high quality development.Second,based on the enterprise's heterogeneity,the paper investigates the direction and intensity of banking competition affecting enterprise innovation and total factor productivity.There is less about the differences in the impact of banking competition on heterogeneous firms for existing literature.Considering the changes of firms' financing needs in the new normal economic growth and the changes of credit supply in the banking,this paper study the mechanism of the impact of banking competition on enterprise innovation and total factor productivity.Moreover,this article take firm individual characteristics into the empirical research,such as firm scale,opacity,ownership,R&D investment and financing constraints.This paper compares the differences of banking competition effect under the different firms' individual characteristics.This thesis confirms the importance of enterprise heterogeneity in banking competition influence on firm innovation and high quality economic growth.This thesis also expands the study about banking competition and firm innovation,total factor productivity.This provides policy theory for Chinese financial reform and firm innovation under the new situation.Third,this paper based on a mathematical model to analyze the impact of financial development indicators such as banking competition on R&D investment and total factor productivity.There have been few theoretical models focusing on the role of financial development in corporate R&D and total factor productivity from the perspective of banking competition.These studies consider financial development as an overall variable,and little attention has been paid to the role of financial development in corporate R&D investment and total factor productivity from the perspective of banking competition.Therefore,based on the endogenous growth model of Romer(1990),this thesis introduces financial development variables,such as banking competition,and analyzes the monotonic effect of financial development on firm innovation and total factor productivity under the framework of horizontal innovation.This article extends the theoretical model of banking competition impact on R&D innovation and total factor productivity.This offers a new perspective on the issue of financial development and economic growth which have been extensively studied.Fourthly,this paper obtains the data of banking institutions at the prefecture-level administrative regions from the China CBRC license issuance system,and then makes a statistical analysis on banking competition.The index of innovation and total factor productivity measured from enterprises.The existing research of banking competition are mostly stuck in theoretical induction or national and provincial data statistical analysis,which lack of systematic and reliable data validation.This paper tries to make up for the deficiencies in this field and analyzes the changing trend and status quo of banking competition since China's reform and opening up from the level of administrative districts.Discarding the using a single macro-financial index to measure bank competition to improve the reliability and accuracy of statistical results.This is helpful to grasp the changes in the banking competition of China and provides scientific indicators for the empirical analysis.This offers a new perspective to explain the difference of firm innovation and regional economic growth.