Entry of foreign banks, state ownership, and corporate innovation

This study analyzes the impact of the entry of foreign banks on corporate innovation in China. Considering a group of A-share listed firms, we find that, compared to privately owned enterprises, the entry of foreign banks can significantly improve the level and quality of patent applications of state-owned enterprises. We further document that the entry of foreign banks can improve the information environment and curtail agency problems in such enterprises. Our evidence indicates that the entry of foreign banks can incentivize corporate innovation in an economy with strong government intervention and weak investor protection.