Abstract
This paper investigates the casual effects of credit corruption and financial constraints on firms' innovation activities, by using a unique data from the 2012 World Bank micro survey on Chinese firms. The results show that both the credit corruption and financial constraints significantly inhibit corporate innovation, and the financial constraints have more pronounced inhibitory effect on the innovation in firms with credit corruption. In addition, the credit corruption reinforces the inhibitory effect of financial constraints on the innovation in SMEs, private firms, capital-intensive firms, and firms with lower regional financial development.
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