[Research Seminar] Finance: “Asset overhang and technological change” H. DEGRYSE
Speaker: Hans DEGRYSE
KU LEUVEN
Date and Location – Thursday April 14 th 2022 from 13:30 to 15:00
in Paris campus (P400) and in Lille campus (B252 – visio)
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ABSTRACT
Investors face reduced incentives to finance projects that devalue their legacy po-sitions. We formalize this “asset overhang” and study its drivers. We apply our framework to the climate-banking nexus, where the net-zero transition effectively poses a dilemma to banks: while environmental innovation can be profitable, its widespread dissemination risks disrupting the value of legacy positions.
Using granular firm-level data on innovation and diffusion of environmental goods & services, we document the presence of asset overhang as innovators (diffusors) of disruptive environmental technologies are approximately 5.9 p.p. (0.5 p.p) less likely to receive bank credit compared to non-disruptive counterparts. Individual investors with less legacy positions at risk mitigate the economywide asset overhang problem, thereby facilitating technological transition.
Keywords: Financial intermediation · Technological change · Innovation · Diffusion · Credit Rationing · Climate change.