Bank Specialization and Corporate Innovation
Review of Finance (2025) - Special Issue on Finance and Product Markets
with Olivier De Jonghe (ECB & NBB), Hans Degryse (KU Leuven) & Leonardo Gambacorta (BIS)
Theory offers conflicting predictions on whether and how lenders' sectoral specialization would affect firms’ innovation activities. We show that the sign and magnitude of this effect vary with the degree of "asset overhang" across sectors, which is the risk that a new technology has negative spillovers on the value of a bank's legacy loan portfolio. Using both patent data and micro-level innovation survey data, we find that lenders' sectoral specialization improves innovation for firms operating in sectors with low asset overhang, but impedes innovation for firms operating in sectors with high asset overhang. These results hold for two distinct measures of asset overhang and using bank mergers as a source of exogenous variation in bank specialization. We further show that these heterogeneous effects arise through financial contracting. Overall, our findings provide novel insights into the dual facets of bank specialization and, more broadly, the link between banking and innovation.
Presentations: Banco de Portugal-CEPR Conference on Financial Intermediation, Essex University EFiC Conference, Banque de France ACPR Seminar, Czech National Bank, Tri-City Day-Ahead Workshop on the Future of Financial Intermediation, BIS, Florence School of Banking and Finance, University of Zurich, Belgian Financial Research Forum, Belgian Science Policy Office, BOFIT Workshop on Banking and Finance in Emerging Markets
Paper | Bloomberg | SUERF Column | De Bestuurder
Fiscal Support and Banks' Loan Loss Provisions During the COVID-19 Crisis
Journal of Financial Stability (2023)
We study how different types of fiscal support implemented during the COVID-19 crisis affected banks’ credit risk. To do so, we collect data on fiscal support measures implemented by 37 countries and classify these measures into direct support and liquidity support. The former refer to cash transfers and tax deferrals, while the latter refer to government-guaranteed loans and equity injections. Based on this, we show that only direct support reduced banks’ loan loss provisions during the COVID-19 crisis. To explain this finding, we show that only direct support reduced borrowers' default risk and thereby mitigated banks' loan losses. These results provide important policy implications related to the design of fiscal support measures and macroprudential regulation in the banking sector.
Presentations: BOFIT Workshop on Banking and Institutions, Benelux Banking Research Day, BSE Banking Summer School, Belgian Financial Research Forum
Paper