Social Capital and Firm Innovation: Evidence from Cooperative Banking in Korea*

Abstract

This study investigates the link between social capital and firm innovation by examining the cooperative banking channel in Korea. Social capital has a positive impact on the activities of cooperative banks, thus fostering innovation in regional firms. We first confirm a positive association between social capital and firm innovation in Korea and find that firms located in provinces with higher social capital innovate more. We then show that social capital positively influences firm innovation mainly through the cooperative banking channel. Further, we demonstrate that the cooperative banking channel is more pronounced in regions where cooperative banks are riskier, human capital is less, and commercial banking is less developed.