Do Bank Loans To Financially Distressed Firms Lead To Innovation?

초록

This study scrutinizes the association between a bank loan to a financially distressed firm and technological innovation. Using probit model estimations based on a comprehensive Korean manufacturing firm-level data set on innovation and bank loans, we first find that a bank loan to a troubled firm with a weak incentive system has no or little effect on innovation. Second, beneficial effects on innovation are observed when the firm has a strong incentive-based pay system. Third, financially distressed firms with strong incentive systems pursue product innovation rather than process innovation. Finally, the innovation performance of these firms strengthens with more stable financing.

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