Financing Innovation in New Small Firms: New Evidence From Canada

Abstract

This paper investigates the financial characteristics of new small firms. The analysis develops a representative, small-firm financial profile, and evaluates the extent to which the proportionate use of different instruments and sources is correlated with industry-level and firm-specific characteristics. Multivariate methods are then used to examine relationships between financial structure, R&D-intensity and innovation.Our results suggest that relationships between knowledge-intensity and capital structure are bidirectional. After controlling for a range of industry-and firm-level covariates, firms that devote a higher percentage of their investment expenditure to R&D also exhibit less debt-intensive structures. Conversely, debt-intensive structures also act to constrain investments in R&D. These relationships, however, depend upon the type of debt in the asset mix. It is the share of long-term debt to total assets that is negatively related to investments in knowledge.

Towards a new framework for SMEs success: a literature review

“…Disney et al (2003) further concludes that the slowdown in growth in older SMEs is due to: (i) a slackening in entrepreneurial motivation, once the business owner has achieved a satisfactory level of income; (ii) the firm may have moved beyond its minimum efficiency level and (iii) diseconomies may have emerged with the need to employ and manage others. Regardless of the rates of growth, and as already discussed earlier, SMEs exhibit high risks of failure in the first years of operation (Baldwin et al, 2000;Disney et al, 2003;Franco and Haase, 2009;Gray et al, 2012;Ropega, 2011) supporting the argument that the younger the company is, the more likely it is to fail.…”

The Importance of Entry to Canadian Manufacuring, with an Appendix on Measurement Issues

“…One way of answering this question is to ask when the hazard rate of new firms approaches that of incumbents. Baldwin et al (2000) find that the hazard rates of new firms, when measured in their teen years, is still above that of incumbents; but, by their fifth year, substantial differences in the effect of certain covariates associated with the rate of exit have disappeared. Hazard rate differentials across geographic regions and industries are far more prevalent in entrants that are one and two years old than they are for entrants that have managed to make it through their first five years.…”

“…For the majority of these firms, life is short. Most new entrants exit shortly after birth (Baldwin et al, 2000). This process provides the stimulus for entrepreneurial learning.…”

Access To Finance – Innovation Relationship In Post-Transition

“…[39] point out that financial constraints are, at least to some extent, related to firms' poor financial structure. For instance, high share of long term debt is found limiting to R&D activity because firms with debt-intensive capital structures do not possess the level of flexibility necessary for performing innovation activities [2]. Notwithstanding the potential benefits of venture capital, the available comparative data (such as [45]) reveals that it is highly inaccessible for enterprises in post-transition economies.…”