In this paper we provide evidence from China that access to loans positively affects the probability that a firm will invest in innovation. However, the positive effect of private debt on innovation investment is significantly moderated by political instability. The cost of political instability...

We provide evidence from China that access to loans positively affects the probability that a firm will invest in innovation. However, the positive effect of private debt on innovation investment is significantly moderated by political instability. The cost of political instability on innovation...

Recent empirical studies show that innovative firms heavily rely on debt financing. Debt overhang implies that debt hampers investment by incumbents. We show that a second effect of debt is that it stimulates entry of new firms and, therefore, innovation. Using a Schumpeterian growth model in...