Financial Constraints, Innovation Performance and Sectoral Disaggregation

Abstract

How do the effects of financial constraints on innovation performance vary by sector and firm characteristics? This paper uses innovation survey data from eleven European countries to examine the heterogeneity of these effects. So far, there has been a lack of cross-country micro-level studies exploring the effects of financial constraints on innovation performance in Western Europe and only little research about the variability of such effects between the broad sectors of production and services. Our results suggest that the impact of direct measures of financial barriers differs in production and services sectors, and also by the firm's export orientation. In particular, financial constraints appear to have more pronounced negative effects in the production sector than in the services sector. Among different types of firms, the response to financial constraints seems to be stronger for non-exporters.

Bank financing and credit rationing of Australian SMEs

“…In relation to credit rationing, innovative activities in the UK, particularly in high technology and smaller firms, has been found to influence bank lending (Canepa and Stoneman, 2008;Freel, 1999Freel, , 2007Westhead and Storey, 1997), in 11 European countries (Efthyvoulou and Vahter, 2012), and in South Africa, where 75% of new SMEs were denied loans (Fatoki and Odeyemi, 2010). Although the latter authors do not consider innovation specifically, we argue that being a new SME implies that at least some degree of novel or non-novel innovation is involved in credit rationing.…”

Firm Constraints on the Link between Proactive Innovation, Open Innovation and Firm Performance

“…Nonetheless, literature tends to focus on the lack of credit as a sole indicator of external constraints [19][20][21][22]. Studies that deal with other types of constraint tend to focus on firms in developed markets [23,24]. As a consequence, little is known about the linkage between constraints and innovative performance in developing countries.…”

Financial constraints and the failure of innovation projects

“…In particular, large firms are much more affected since they invest in innovation projects that involve a larger amount of funds. Finally, Efthyvoulou and Vahter (2015) show that financial constraints have negative effects on innovation performance but that these effects are heterogeneous. Their results point out that financial constraints have more negative effects in the manufactures than in service sectors and that they are particularly detrimental for innovative non-exporting firms.…”