Does bank competition spur firm innovation?

Figures & data

Table 1. Variable definitions.

Variable	Definition
Ln_Innovation	The logarithm of a firm’s new product value (in thousands of Chinese yuan)
Ratio_Innovation	The ratio of a firm’s new product value divided by its gross industrial output value (%)
BranchCR4	The ratio of the Big Four state-owned commercial banks branches to all commercial banks branches at the prefecture level
BranchHHI	The Herfindahl index of the Big Four state-owned commercial banks branches to all commercial banks branches at the prefecture level
Size	The logarithm of a firm’s total assets (in thousands of Chinese yuan)
Age	The number of years since a firm’s founding year
K_L	The logarithm of a firm’s capital-to-labour ratio, in which capital is represented by fixed assets and labour is represented by the number of employees (in thousand Chinese yuan per person)
Leverage	Leverage ratio, defined as debt divided by total assets
ROA	The ratio of a firm’s profit to its total assets
Subsidy	The logarithm of the amount of subsidies from the government (in thousands of Chinese yuan)
Tangibility	The ratio of a firm’s tangible fixed assets to its total assets
Industry-HHI	The Herfindahl index of four-digit SIC industry of firms, measured at the end of the fiscal year based on sales
State-ratio	The percentage of a firm’s shares held by state shareholders
State-owned	A dummy variable that takes the value of one if the state is the ultimate controlling shareholder of a firm and zero otherwise
Foreign-ratio	The percentage of a firm’s shares held by foreign shareholders
Foreign-owned	A dummy variable that takes the value of one if a foreign shareholder is the ultimate controlling shareholder of a firm and zero otherwise
Opacity	The logarithm of the ratio of a firm’s total assets to its fixed assets
Ln_R&D	The logarithm of a firm’s research and development expenditures (in thousands of Chinese yuan)
Ratio_R&D	The ratio of a firm’s research and development expenditures divided by its total sales (%)

Table 2. Summary statistics.

Variable	Min	Mean	Max	S.D.	Observations
Ln_Innovation	0.000	9870	1.32e+08	302,550	1,279,690
Ratio_Innovation	0.000	3.040	100.000	13.765	1,279,690
BranchCR4	0.000	0.478	0.988	0.172	1,279,690
BranchHHI	0.000	0.077	0.923	0.057	1,279,690
Size	18.000	87,113	2.23e+08	790,678	1,279,690
Age	1.000	9.011	62.000	9.193	1,279,690
K_L	0.226	111	1,290,906	1410	1,279,690
Leverage	0.000	0.556	0.999	0.257	1,279,690
ROA	−0.193	0.112	0.908	0.167	1,279,690
Subsidy	0.000	220	4,811,285	7177	1,279,690
Tangibility	0.000	0.357	1.000	0.221	1,279,690
Industry-HHI	0.001	0.036	0.421	0.076	1,279,690
State-ratio	0.000	0.060	1.000	0.224	1,279,690
State-owned	0.000	0.060	1.000	0.238	1,279,690
Foreign-ratio	0.000	0.202	1.000	0.372	1,279,690
Foreign-owned	0.000	0.191	1.000	0.393	1,279,690
Opacity	1.000	9.558	133,211	202	1,279,690
Ln_R&D	0.000	503	7,142,497	17,746	627,128
Ratio_R&D	0.000	0.208	180.579	1.538	627,128

Variable definitions are provided in Table 1. In Table 2, the summary statistics of variables Ln_Innovation, Size, K_L, Subsidy, Opacity, and Ln_R&D are the original values without the logarithm processing.

Table 3. The estimation results of bank competition’s effects on firm innovation.

	Ln_Innovation		Ratio_Innovation		Ln_Innovation		Ratio_Innovation
Dependent variable	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
BranchCR4	−0.573*** (0.109)		−1.796*** (0.392)		−0.585*** (0.104)		−1.884*** (0.395)
BranchHHI		−1.340*** (0.328)		−4.028*** (1.116)		−1.411*** (0.307)		−4.417*** (1.129)
Size					0.597*** (0.007)	0.597*** (0.007)	1.605*** (0.026)	1.605*** (0.026)
Age					0.104*** (0.005)	0.104*** (0.005)	0.121*** (0.022)	0.122*** (0.022)
K_L					−0.194*** (0.006)	−0.194*** (0.006)	−0.234*** (0.028)	−0.234*** (0.028)
Leverage					−0.078*** (0.014)	−0.078*** (0.014)	−0.572*** (0.072)	−0.572*** (0.072)
ROA					0.376*** (0.023)	0.375*** (0.023)	1.500*** (0.101)	1.496*** (0.101)
Subsidy					0.089*** (0.003)	0.089*** (0.003)	0.303*** (0.012)	0.303*** (0.012)
Tangibility					0.403*** (0.028)	0.402*** (0.028)	−0.350*** (0.131)	−0.351*** (0.131)
Industry-HHI					0.276*** (0.046)	0.274*** (0.046)	0.903*** (0.216)	0.896*** (0.216)
Regional FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industry FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Year FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Observations	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690
R^2	0.097	0.097	0.068	0.068	0.170	0.170	0.093	0.093

Regional FE stands for the regional fixed effects. Industry FE stands for the industry fixed effects. Year FE stands for the year fixed effects. Robust standard errors are in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Table 4. Bank competition and firm innovation: the role of firm size.

	Small firms		Medium firms		Large firms
Group	(1)	(2)	(3)	(4)	(5)	(6)
Dependent variable	Ln_Innovation
BranchCR4	−0.624*** (0.121)		−0.367*** (0.114)		0.708* (0.375)
BranchHHI		−1.640*** (0.356)		−0.441 (0.320)		3.474*** (1.063)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	919,624	919,624	318,144	318,144	41,921	41,921
R^2	0.089	0.089	0.174	0.174	0.334	0.334
	(7)	(8)	(9)	(10)	(11)	(12)
Dependent variable	Ratio_Innovation
BranchCR4	−1.846*** (0.452)		−1.590*** (0.523)		0.751 (1.606)
BranchHHI		−4.934*** (1.297)		−2.408* (1.397)		11.50** (4.529)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	919,624	919,624	318,144	318,144	41,921	41,921
R^2	0.055	0.055	0.112	0.112	0.244	0.244

To save space, we do not report the coefficient estimates of some of the control variables. Robust standard errors are in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Table 5. Bank competition and firm innovation: the role of firm opacity.

	Low opacity firms		Medium opacity firms		High opacity firms
Group	(1)	(2)	(3)	(4)	(5)	(6)
Dependent variable	Ln_Innovation
BranchCR4	−0.819*** (0.132)		−0.568*** (0.111)		−0.369*** (0.106)
BranchHHI		−1.965*** (0.390)		−1.388*** (0.328)		−0.890*** (0.299)
Opacity	−0.115*** (0.012)	−0.115*** (0.012)	−0.211*** (0.012)	−0.211*** (0.012)	−0.234*** (0.010)	−0.234*** (0.010)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	426,563	426,563	426,563	426,563	426,563	426,563
R^2	0.154	0.154	0.191	0.190	0.179	0.179
	(7)	(8)	(9)	(10)	(11)	(12)
Group	Low opacity firms		Medium opacity firms		High opacity firms
Dependent variable	Ratio_Innovation
BranchCR4	−3.010*** (0.538)		−1.448*** (0.438)		−1.219*** (0.433)
BranchHHI		−7.030*** (1.537)		−3.491*** (1.258)		−2.806** (1.169)
Opacity	0.109* (0.058)	0.110* (0.058)	−0.111* (0.057)	−0.110* (0.057)	−0.295*** (0.051)	−0.295*** (0.051)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	426,563	426,563	426,563	426,563	426,563	426,563
R^2	0.080	0.080	0.100	0.100	0.113	0.113

To save space, we do not report the coefficient estimates of some of the control variables. Robust standard errors are in parentheses. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Table 6. Bank competition and firm innovation: the role of state ownership.

	SOEs				Non-SOEs
Group	Ln_Innovation		Ratio_Innovation		Ln_Innovation		Ratio_Innovation
Dependent variable	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
BranchCR4	−0.601*** (0.103)		−1.319* (0.728)		−0.759*** (0.171)		−2.030*** (0.399)
BranchHHI		−1.032** (0.459)		−0.270 (1.900)		−1.397*** (0.296)		−4.831*** (1.117)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	81,096	81,096	81,096	81,096	1,198,594	1,198,594	1,198,594	1,198,594
R^2	0.288	0.288	0.159	0.159	0.157	0.157	0.090	0.090
	(9)	(10)	(11)	(12)	(13)	(14)	(15)	(16)
BranchCR4	−0.497*** (0.093)		−1.676*** (0.365)		−0.526*** (0.095)		−1.794*** (0.371)
BranchHHI		−1.216*** (0.281)		−3.994*** (1.055)		−1.294*** (0.286)		−4.297*** (1.073)
State-ratio	0.461*** (0.021)	0.460*** (0.021)	1.005*** (0.093)	1.004*** (0.094)
BranchCR4× State-ratio	0.494*** (0.103)		2.174*** (0.447)
BranchHHI×State-ratio		1.302*** (0.267)		5.561*** (1.125)
State-owned					0.429*** (0.020)	0.428*** (0.020)	0.926*** (0.088)	0.924*** (0.089)
BranchCR4× State-owned					0.463*** (0.097)		1.958*** (0.422)
BranchHHI×State-owned						1.255*** (0.254)		5.078*** (1.078)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690
R^2	0.170	0.170	0.093	0.093	0.170	0.170	0.093	0.093

To save space, we do not report the coefficient estimates of some of the control variables. Robust standard errors are in parentheses. State-ratio is a continuous variable. In columns 9, 10, 11, and 12, BranchCR4, BranchHHI, and State-ratio are mean centred for the construction of the interaction terms. State-owned is a dummy variable. In columns 13, 14, 15, and 16, BranchCR4 and BranchHHI are mean centred for the construction of the interaction terms. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Table 7. Bank competition and firm innovation: the role of foreign ownership.

	Foreign firms				Domestic firms
Group	Ln_Innovation		Ratio_Innovation		Ln_Innovation		Ratio_Innovation
Dependent variable	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
BranchCR4	0.095 (0.118)		0.872 (0.582)		−0.635*** (0.107)		−2.131*** (0.406)
BranchHHI		0.414 (0.302)		1.184 (1.454)		−1.489*** (0.309)		−4.725*** (1.150)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	202,560	202,560	202,560	202,560	1,077,130	1,077,130	1,077,130	1,077,130
R^2	0.133	0.133	0.074	0.074	0.185	0.185	0.103	0.103
	(9)	(10)	(11)	(12)	(13)	(14)	(15)	(16)
BranchCR4	−0.488*** (0.093)		−1.572*** (0.363)		−0.501*** (0.095)		−1.733*** (0.368)
BranchHHI		−1.190*** (0.278)		−3.694*** (1.042)		−1.235*** (0.286)		−4.183*** (1.065)
Foreign-ratio	−0.482*** (0.015)	−0.483*** (0.015)	−1.757*** (0.073)	−1.746*** (0.072)
BranchCR4× Foreign-ratio	0.035 (0.072)		0.958*** (0.351)
BranchHHI×Foreign-ratio		0.184 (0.191)		2.977*** (0.909)
Foreign-owned					−0.432*** (0.014)	−0.432*** (0.014)	−1.584*** (0.068)	−1.573*** (0.067)
BranchCR4× Foreign-owned					0.073 (0.069)		0.980*** (0.329)
BranchHHI×Foreign-owned						0.285 (0.181)		3.088*** (0.844)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI, Regional FE, Industry FE, Year FE
Observations	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690
R^2	0.172	0.172	0.094	0.094	0.172	0.171	0.094	0.094

To save space, we do not report the coefficient estimates of some of the control variables. Robust standard errors are in parentheses. Foreign-ratio is a continuous variable. In columns 9, 10, 11, and 12, BranchCR4, BranchHHI, and Foreign-ratio are mean centred for the construction of the interaction terms. Foreign-owned is a dummy variable. In columns 13, 14, 15, and 16, BranchCR4 and BranchHHI are mean centred for the construction of the interaction terms. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.

Table 8. Results of the robustness tests.

	Ln_Innovation	Ratio_Innovation	Ln_R&D		Ratio_R&D		Ln_Innovation		Ratio_Innovation		Ln_Innovation		Ratio_Innovation		Ln_Innovation		Ratio_Innovation
Dependent variable	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	(14)	(15)	(16)	(17)	(18)
Deregulation	86.49*** (6.657)	109.7*** (25.83)
BranchCR4			−0.173*** (0.028)		−0.069*** (0.013)		−1.365*** (0.252)		−3.846*** (1.099)		−0.773*** (0.089)		−0.785** (0.383)		−0.585*** (0.036)		−1.884*** (0.177)
BranchCR4^2							0.691*** (0.195)		1.737** (0.875)
BranchHHI				−0.636*** (0.077)		−0.309*** (0.035)		−1.694*** (0.513)		−5.333** (2.145)		−2.088*** (0.267)		−2.345** (1.079)		−1.411*** (0.100)		−4.417*** (0.478)
BranchHHI^2								0.982* (0.586)		3.185* (1.716)
Control variables	Size, Age, K_L, Leverage, ROA, Subsidy, Tangibility, Industry-HHI
Regional FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	No	No	No	No
Industry FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	No	No	No	No
Year FE	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	No	No	No	No
Firm	No	No	No	No	No	No	No	No	No	No	No	No	No	No	Yes	Yes	Yes	Yes
Observations	1,279,690	1,279,690	627,128	627,128	627,128	627,128	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690	1,279,690
R^2	0.170	0.093	0.207	0.207	0.056	0.056	0.170	0.170	0.093	0.093	0.706	0.706	0.621	0.621	0.170	0.170	0.093	0.093

To save space, we do not report the coefficient estimates of some of the control variables. Robust standard errors are in parentheses. Variable definitions are provided in Table 1. ***, **, and * denote significance at the 1%, 5%, and 10% levels, respectively.