This paper examines the impact of banking competition on innovation, using the staggered deregulation of interstate bank branching laws in the United States as an exogenous shock. The authors find that increased banking competition reduces state-level innovation by public corporations headquartered in deregulating states, while increasing innovation among private firms that are dependent on external finance and have limited access to credit from local banks. They argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations, reducing the supply of innovative targets and thus the portion of state-level innovation attributable to public corporations. The study contributes to the literature on the real effects of banking deregulation and the relationship between finance and innovation.This paper examines the impact of banking competition on innovation, using the staggered deregulation of interstate bank branching laws in the United States as an exogenous shock. The authors find that increased banking competition reduces state-level innovation by public corporations headquartered in deregulating states, while increasing innovation among private firms that are dependent on external finance and have limited access to credit from local banks. They argue that banking competition enables small, innovative firms to secure financing instead of being acquired by public corporations, reducing the supply of innovative targets and thus the portion of state-level innovation attributable to public corporations. The study contributes to the literature on the real effects of banking deregulation and the relationship between finance and innovation.