Nonlinear Effect of Financial Efficiency and Financial Competition on Heterogeneous Firm R&D: A Study on the Perspective of Sustainable Finance

Financial Development

Due to the rise of the research on the influence of financial development on the real economy, micro-enterprises financial development or economic innovation investment research has received extensive attention. From the perspective of financial structure, this chapter analyzes the comparative advantage of promoting R&D investment in the banking and market-oriented financial structures, as well as the inflow of foreign capital under the opening of the financial markets. On the basis of studies on bank-dominated financial structure, such as Baum (2011), financial intermediation is good at collecting and processing information, which is conducive to resources collection and economic development. Nevertheless, On the basis of studies on market-dominated financial structures such as Gustav (2010), financial markets can provide more flexible financial risk products and risk management tolls; nevertheless, banks are generally cautious, which is detrimental to innovation and growth. With the opening and deepening of financial markets, the inflow of foreign capital has continuously enhanced the role of domestic financial structure in promoting innovative investments in the real economy. In addition, countries with high efficient financial systems export financial intermediation functions to countries with low efficiency; therefore, this will help achieve innovative capital allocation and risk diversification functions, increasing firm R&D, as Bertrand (2009) pointed out.