We examine the effect of debt financing capacity on firm innovation by employing a shock that increases firms' asset pledgeability. We find that firms increase innovation activities after the shock, and the increase is greater in regions with more effective enforcement and in firms with more...

This paper explores the puzzle of inconsistent findings in regard to bank lending decisions and the negative response to bank loan announcements in China. Using firm performance before and after the lending decisions, adjusted for the effects of earnings management, we are able to examine not...