Accessing external finance for innovation is difficult. We study the effect of financial constraints on the probability of conducting process innovation, while also considering the role of past experience. We show a firm's optimal process innovation decision is a function of its previous decision and financial constraints, which naturally leads to a set of population moments for empirical testing with Australian microdata from 2006 to 2018. We find that if a firm did not conduct process innovation previously, financial constraints reduce its probability of process innovation by around 10 per cent. Whereas with previous process innovation, financial constraints reduce the probability by around 12 per cent.*This paper draws on research carried out as part of Siddarth Roche's honours dissertation at James Cook University. The authors thank staff at the College of Business, Law and Governance at James Cook University and the journal's anonymous referees for their valuable comments that strengthened this article. Open access publishing facilitated by James Cook University, as part of the Wiley -James Cook University agreement via the Council of Australian University Librarians.

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