Abstract
When obtaining short-term loans, an innovative firm tends to expand its production scale, thereby reallocating its R&D-related resources away from innovation. By exploiting the unique situation in China that patenting firms for the first time obtained short-term patent-backed loans (PBLs), we find that the PBL access negatively influences firms' propensities of producing high-quality innovation. Consistent with the R&D resource reallocation hypothesis, we find that this negative effect exists only among firms initially having invention patents; it is more pronounced when the PBL covers a larger portion of firm investment and when these firms expand more aggressively. We confirm the scale expansion effect by finding that the PBL access positively influences firms' subsequent size.
Published Version
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