Financial Intermediaries and Innovative Firms
Monday, November 18, 2013 – ( 2:00 pm to 3:30 pm )
Location: BC 430
Brian Wolfe, Ph.D. candidate Indiana University
Innovation is important, resource intensive, and is particularly difficult for outsiders to evaluate. Some financial intermediaries may have expertise to overcome the information asymmetry associated with innovative firms and may be better equipped to manage the adverse selection risk. Banks may play an important role in innovative firm financing yet recent work suggests that the multiple waves of regulatory changes to the banking system appear to provide conflicting implications. I use loan level data to disentangle some of the underlying mechanisms and show that new lender entry forces incumbent lenders to increase their loan flow to local innovative firms by as much as 86%. They also have a 26% higher probability of issuing loans to local “fringe” firms - riskier, first time borrowers that afterward produce their first cited patent. However, these effects are muted by mergers within the banking industry that cause lenders to decrease their flow of loans to innovative firms.
Brian Wolfe is a doctoral candidate in Finance with a minor in Statistics from Indiana University. He joined the Finance department in 2008. His research and teaching interests include corporate finance, and banking. Prior to beginning his doctoral studies, Brian was a Product and Market Development Researcher at a Fortune 100 petrochemical company (LyondellBasell). Brian holds a M.B.A. in from the Williams School of Business at Xavier University and a Bachelor’s degree in Chemical Engineering from the University of Cincinnati.
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