The Effect Of Exploratory Innovation On Corporate Debt Financing

Technological innovation is the engine driving economic growth.The report to the 19 th CPC National Congress clearly stated that "innovation is the strategic support for building a modern economic system",raising the status of innovation to an unprecedented level of national strategy.Finance is the core of modern economy,and the construction of a modern financial system serving the real economy and scientific and technological innovation is the key to effectively promote high-quality economic development and achieve the goal of becoming a powerful country through scientific and technological innovation.At present,China’s financial system needs to be more inclined to the demand of high-quality economic development with innovation as the growth engine,more inclined to the resources of scientific and technological innovation enterprises,and vigorously develop the ability of financial market to support core technological innovation.Based on the above background,this paper focuses on the debt market,taking the difference of enterprise innovation behavior as the entry point,aiming to explore the impact of exploratory innovation(non-improved)on the debt financing of enterprises,so as to get a glimpse of the resource allocation efficiency of China’s financial market and the ability to serve the high-quality development of the real economy.This not only helps to innovation for the enterprise and financial market research to provide empirical evidence from emerging economies,at the same time help financial institutions,investors and regulators to better understand the connotation of the exploration of innovation and role,and to further deepen the reform of the financial supply side structural,power quality and economic development has the vital significance.Based on Allen et al.(2019)’s research framework on formal finance and informal finance,this paper divides debt financing into formal finance and informal finance.Formal financial financing refers to bank loans and bond issuance,while informal financial financing mainly refers to commercial credit,private loans and other liabilities.On this basis,the influence of exploratory innovation on formal financial financing(bank credit,bond issuance)and informal financial financing(commercial credit)is comprehensively studied.China’s financial system is dominated by banks,and banking institutions undertake the important function of resource allocation in the real economy.Whether and how to understand the innovation behavior of enterprises is becoming an important theoretical and practical problem.Therefore,this paper first examines whether China’s commercial banks pay attention to enterprise innovation and have the ability to identify the differences in enterprise innovation,so as to adjust their credit decisions on exploratory innovative enterprises.The results show that the higher the degree of exploratory innovation is,the more bank loans firms get,indicating that banks pay attention to the difference of firms’ innovation behavior and provide credit support for firms with high exploratory innovation degree.Furthermore,considering that the internal and external environment of an enterprise will affect the effect of exploratory innovation on bank credit decision-making,the heterogeneity of the impact of exploratory innovation on bank credit decision-making is analyzed from the macro,medium and micro levels.The results show that exploratory innovation has a more significant positive effect on bank credit in state-owned enterprises,industries with weak competition and regional enterprises with relatively perfect factor market development.Finally,the influence mechanism analysis shows that exploratory innovation acts on bank credit decision by influencing bank’s future profit expectation and long-term value investor’s concern.On the one hand,the implementation of exploratory innovation by enterprises means long-term stable monopoly returns and market dominance,which can improve the bank’s expectation of future profits and thus prompt banks to provide credit fund support for such enterprises.On the other hand,exploratory innovation can attract the attention and holding of long-term value investors,effectively reduce the information asymmetry and supervision cost of enterprises,and thus improve the willingness of banks to provide credit support for exploratory innovation enterprises.In short,empirical results show that commercial banks provide credit support for enterprise exploratory innovation.Corporate bond issuance is also one of the important channels to obtain external financing.Financing through the bond market will not affect the ownership relationship of enterprises,and can significantly reduce the financing cost of enterprises,so that enterprises can focus more energy and resources on technological research and development and innovation.Therefore,this paper then examines whether investors in China’s bond market pay attention to enterprise innovation and give a lower risk premium to high-quality exploratory innovation.The results show that the higher the degree of exploratory innovation,the lower the bond issuance cost.In general,it shows that bond investors regard exploratory innovation activities as positive information of value growth,thus enabling enterprises with high exploratory innovation to obtain lower bond issuance costs.Further study found that enterprises explore type innovation’s influence on the bond issuance costs will be influenced by different factors,in the high growth of enterprises,industrial policies to support the development of the industry as well as the factor market and financial contract execution efficiency higher type of enterprises in the region to explore high innovation degree of enterprises get the cost lower bond issue.In addition,by analyzing the path of exploratory innovation on bond issuance cost,it is found that exploratory innovation affects bond issuance cost by influencing credit rating agencies and analysts’ attention.The mediating effect test shows that bond credit rating and analyst’s attention play a part of mediating role in the impact of exploratory innovation on bond issuance cost.All in all,the empirical results support the role of exploratory innovation in reducing the cost of corporate bond issuance.There are obvious "ownership discrimination" and "scale discrimination" in China’s credit market.A large number of credit funds flow to large state-owned enterprises,and it is difficult for small and medium-sized private enterprises to obtain bank loans.Informal financial financing based on relationship and reputation has become an important alternative financing source for Chinese enterprises.Commercial credit as an informal financial financing source has been verified by existing studies.In view of the important role of informal finance in the financing structure of Chinese enterprises,we should not only pay attention to formal financial financing such as bank loan and bond issuance,but also pay attention to informal financial behavior such as commercial credit to investigate the impact of exploratory innovation on debt financing under the background of Chinese system.Finally,this paper investigates the influence of exploratory innovation on commercial credit financing and its influencing mechanism.The results show that the higher the degree of exploratory innovation,the lower the level of business credit.Further,from the Angle of the micro,meso and macro analysis of the influence of the type enterprises to explore innovative use of commercial credit the difference of effect in different situation,it is found that the high growth,with low levels of competitive industries and in macro-economic downturn,explore the innovation of the commercial credit financing reduced effect is more apparent.By analyzing the influence mechanism of exploratory innovation on commercial credit,it is found that exploratory innovation mainly affects commercial credit by improving the availability of formal financial financing,including bank loan and bond financing.The mediating effect test shows that short-term bank loans and bonds payable play a part of mediating role in the impact of exploratory innovation on commercial credit.This result shows that commercial credit is mainly reflected in "alternative financing effect",which is consistent with previous research conclusions.Based on the actual institutional background of China,this paper investigates the influence of exploratory innovation on debt financing of enterprises and its internal influence mechanism.The research contribution mainly lies in:First,this paper considers the heterogeneity of firms’ innovation behavior and examines the impact of firms’ exploratory innovation on their debt financing from the perspective of creditors,which not only enriches the literature on the economic consequences of innovation,but also refines the innovation research from the overall level to the category level.Previous literatures on enterprise innovation mostly focus on influencing factors and lack of research on the economic consequences of innovation,and focus on innovation mainly on the analysis of input amount,output quantity and performance,with little discussion on the differences of innovation types.In addition,according to the patent classification number of listed companies,this paper constructs the enterprise exploratory index,and finds that exploratory innovation can significantly improve the level of formal financial financing(bank credit and bond financing),while reducing the use of informal finance(business credit).This study provides empirical evidence for the impact of exploratory innovation on financial market resource allocation,and helps financial institutions,investors,and regulatory authorities to better understand the connotation of exploratory innovation and its impact mechanism on debt financing.Second,the research conclusions of this paper provide empirical evidence from emerging markets on the impact of enterprise innovation on resource allocation in financial markets,and helpfully supplement relevant literature on innovation and finance.The consideration factors of bank credit decisions are an important topic in the field of bank credit.The impact of innovation activities on bank credit decisions has attracted the attention of western researchers in recent years.However,these empirical studies based on the relationship between innovation activities of listed companies in the United States and bank contracts,the conclusion has not been reached and the heterogeneity of firm innovation behavior has not been considered.Different from the financial system of western countries,whether the credit contract of Chinese banking institutions can reflect the value of enterprise innovation and identify the difference of enterprise innovation has not been concerned by domestic scholars.At the same time,whether investors in the bond market pay attention to enterprise innovation,recognize the difference of enterprise innovation,and then give a reasonable price,the existing literature does not provide an answer.Third,based on the institutional background of China,this paper studies the impact of exploratory innovation on debt financing behavior of enterprises,providing an intuitive perspective and empirical evidence for understanding the financial supply-side reform aimed at serving real enterprises more efficiently and stimulating "new drivers".At the same time,it also provides a certain direction for the improvement of the economic work such as the patent pilot financing project of China’s banking institutions to help the innovation and development of enterprises,the full play of the function of the debt market of the exchange,and the improvement of the financing efficiency of innovative and entrepreneurial bonds.Furthermore,it has important enlightenment significance on how to improve the efficiency of resource allocation for breakthrough innovation in order to improve the "upward development" of domestic cycle and the "international status" of international cycle under the "double cycle" economic pattern in China.