Bank specialization and radical innovation of technology-based SMEs: evidence from technology branches establishment

This paper exploits the staggered establishment of technology branches across prefecture-level cities and employs a multi-period difference-in-differences design to examine the effect of bank specialization on radical innovation among Chinese technology-based SMEs. The results show that bank specialization significantly promotes radical innovation among technology-based SMEs. Mechanism analyses provide suggestive evidence that this effect is associated with banks’ risk tolerance, firms’ financing constraints, and managerial expectations. Heterogeneity analysis further shows that the promoting effect is stronger for younger and smaller firms, as well as for firms located in regions with lower levels of financial development and lower GDP per capita.