Does Financial Development Promote Innovation in Developing Economies? An Empirical Analysis

Aristizabal-Ramirez, Maria; Botero-Franco, Maria Camila; Canavire‐Bacarreza, Gustavo

doi:10.1111/rode.12314

Cited by 23 publications

(14 citation statements)

References 43 publications

(136 reference statements)

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“…Therefore, the relationship between financial development and innovation indicators is projected to be positive. Meanwhile, developing countries are characterized by a lower government investment in innovation in terms of research and development funding, the presence of fewer research academic institutions, but also on the other hand by lower competitiveness for private innovation by enterprises (Aristizabal-Ramirez et al, 2017). Hence, when studying the effect of financial development on innovation for the developing economies, the disparities in the results in comparison with developed countries may be explained by the narrow size of the financial sector along with the other factors mentioned in this paragraph.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

The Effects on Innovation from Financial Sector Development: Evidence from Developing Countries

Kapidani¹,

Luçi²

2019

JOC

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The subject of financial system development is widely studied in the finance literature as an indicator of economic growth and a driver of technological innovation supporting the mobilization of capital for growth. However, varying results are obtained when examining developed countries compared to the emerging countries. Developing countries are characterized by a lower investment in innovation, and lower levels of competitiveness in terms of research and development funding, fewer research academic institutions, but also lower incentives for private innovation by enterprises. The purpose of this paper is to examine the relationship between financial development indicators and innovation by analyzing data for 15 developing countries within the time frame of 1996-2016. The financial system is analyzed in two main pillars: credit institutions and equity markets. The number of innovation patent applications is the dependent variable of the study, i.e. as an indicator of a country's innovative performance. The results of the study show that a higher level of crediting by the banking sector will positively affect the number of patent applications. Credit mobilization by other financial intermediaries in the financial system such as equity markets or non-banking institutions show a lower efficiency in boosting innovation activities, resulting in the opposite effects regarding the number of patent applications. Countries with a higher level of education will show more efforts toward innovation and the development of innovative practices. On the other hand, higher competitiveness among companies in terms of technology innovation and processes is expected to boost the demand for funds in the financial system, leading to the improvement in system development.

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Section: Theoretical Frameworkmentioning

confidence: 99%

The Effects on Innovation from Financial Sector Development: Evidence from Developing Countries

Kapidani¹,

Luçi²

2019

JOC

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“…Enterprise managers will pay close attention to the forecasts and ratings of institutions, and then adjust management decision-making to meet or exceed capital market expectations. Some scholars have noticed that the profit forecasts and institutional coverage will affect innovation activities [5]. These results lay the foundation for further exploration of the relationship between market expectation and innovation input.…”

Section: Introductionmentioning

confidence: 89%

“…Based on the previous research results [2,5], considering the impact of capital market expectation, institutional coverage, government subsidies and other relevant factors on manufacturing enterprise innovation input, as well as the non-observed effect differences between individuals and time-points, the individual and time fixed effects model of unbalanced panel data is established as follows:…”

Section: Regression Modelmentioning

confidence: 99%

“…The previous literature shows that innovation is an essential way for enterprises to improve their competitive advantages, and many internal and external factors affect enterprise innovation, such as government behaviors [2], manager characteristics [3], organizational learning [4], capital market [5], and environmental management [6]. Simultaneously, with the vigorous development of capital markets, the forecasting and rating institutions as the specialized market intermediaries connecting investors and listed companies, the function of public opinion guidance and supervision of the institution is increasingly apparent, and the external governance effect is prominent, which can significantly influence the innovation decisions of managers of listed companies.…”

Section: Introductionmentioning

confidence: 99%

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Can the Gap and Rating of Market Expectation Promote Innovation Input of China Manufacturers?

Jiang

2020

Sustainability

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Under the strategic background of Made-in-China to Mind-in-China, how the capital market expectation affects enterprise innovation input has reached no coincident conclusion. This paper uses Chinese A-share manufacturing listed companies from 2010 to 2017 to investigate the internal mechanism among the gap and rating of market expectation and enterprise innovation input, and further explores the moderating effects of institutional coverage and government subsidies. The results show that: firstly, innovation input will first decrease and then increase with the market expectation gap increase. However, innovation input will first increase and then decrease with the market expectation rating increase. Secondly, when the institutional coverage and government subsidies increase, innovation input will remarkably transform from the first decrease and then increase into the first increase, then decrease with the market expectation gap increase. Finally, when institutional coverage is high and government subsidies are low, innovation input will remarkably transform from the first increase and then decrease into the first decrease, and then increase with the market expectation rating increases. These research findings can provide some academic support and policy references for managers to deal with effectively external performance pressures, institutional coverage, and optimize government subsidies to promote manufacturers’ innovation-driven upgrading.

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“…Prior academic researchers also verify that unnecessary financialization will reduce the enterprise's innovation (Mazzucato, 2013;Dosi et al, 2016), especially, enterprises' basic research innovation will be reduced. Aristizabal-Ramirez et al (2017) analyze the empirical data and find a negative correlation between financial development and the enterprise's innovation. The main reason is due to the separation of ownership and management according to the perspective of enterprise governance.…”

Section: Introductionmentioning

confidence: 99%

Investigating the Relationship Between Entity Financialization, Managers’ Incentives, and Enterprise’s Innovation: Fresh Evidence From China

Zhang

Wang

et al. 2022

Front. Psychol.

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The current study examines the relationship between financialization, managers’ incentives, and the enterprise’s innovation. Based on the principal-agent and incentive theories, this study proposes a research model with two management incentives as moderating variables between financialization and the enterprise’s innovation. First, we analyze the direct relationship between financialization and the enterprise’s innovation. Second, we examine the moderating effect of managers’ equity incentive and compensation incentives on the relationship between entity financialization and the enterprise’s innovation in high-tech/non-high-tech enterprises and state-owned and non-state-owned enterprises. This study covers the most recent updated data from both A-share listed companies in the Shenzhen and Shanghai stock exchange in China from 2009 to 2019. This study’s finding indicates a significant negative impact of entity financialization and the enterprise’s innovation. It means that the entity financial has a significant “crowding-out” effect on the enterprise’s innovation. This study also confirms that management incentives cannot effectively suppress a “crowding-out” impact of entity financialization on firm innovation because of the principal-agent severe problem in financialization. Finally, considering the heterogeneities of property rights and degrees of dependence on the enterprise’s innovation, a “crowding-out” effect of entity financialization on the enterprise’s innovation is more significant in high-tech and state-owned enterprises. Managers’ equity incentive significantly affects the enterprise’s innovation in high-tech enterprises, while the managers’ compensation incentive affects the enterprise’s innovation in state-owned enterprises. Our study could help the enterprise to improve the company manager’s incentive and provide the optimal assets allocation to improve the enterprise’s innovation ability. Lastly, this study provides significant policies and recommendations for the public sector high-tech enterprise and private sector high-tech enterprises. Moreover, policies and recommendations are fruitful for the public sector non-high-tech enterprise and private sector non-high-tech enterprise.

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Does Financial Development Promote Innovation in Developing Economies? An Empirical Analysis

Cited by 23 publications

References 43 publications

The Effects on Innovation from Financial Sector Development: Evidence from Developing Countries

The Effects on Innovation from Financial Sector Development: Evidence from Developing Countries

Can the Gap and Rating of Market Expectation Promote Innovation Input of China Manufacturers?

Investigating the Relationship Between Entity Financialization, Managers’ Incentives, and Enterprise’s Innovation: Fresh Evidence From China

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