Financing of Innovative Small and Medium-Sized Enterprises. A Research in Turkey

Abstract

Today's business realm involves a vast variety of businesses and business groups; small and medium-sized enterprises (SMEs) being one of the most prominent. Despite countless investigations from many different business-related perspectives, their innovation perspective is rarely subjected. This current study chooses this perspective and moves a step beyond by considering financing of these businesses. In other words, this study covets to uncover how innovative SMEs are financed, how much these businesses care about professionalization towards financing issues, and what problems they face in their financing processes. Emphasizing innovative SMEs in techno parks in Turkey, this study discloses noteworthy facts from the Turkish context. Major findings pinpoint a low priority towards a professional financing approach and problems related with external and long-term financing opportunities. A noteworthy implication about both external and long-term financing is that they are entirely dependent on exogenous factors. Most of the participating businesses are on micro and small scales, besides being very young.

Financial Determinants of Innovation in SMEs: A Machine Learning Approach

“…Regarding the 'preference for funding sources' variable, the results obtained are consistent with the empirical evidence that concluded that the companies that innovate follow the order of the preferences of the funding sources predicted by pecking order theory (Myers & Majluf, 1984)-that is, once companies develop innovation activities, they make greater use of internal funds, but as the culture of innovation is imposed on the company, external funds are used more (Bartoloni, 2013;Kerr & Nanda, 2015;Ullah et al, 2010). This evidence is also related to the result obtained on the variable 'sources of short-term financing', which suggests that companies prefer to finance their innovation projects with internal funds in the short term (Ayranci & Ayranci, 2016;Serrasqueiro et al, 2016). In the Colombian case, studies such as the one by Sierra et al (2009) suggested that Colombian manufacturing companies-especially large and small companies-finance their innovation projects with internal funds.…”

“…Our main interest is to identify the most relevant financial variables in the development of (product and process) innovation activities in SMEs in an emerging country such as Colombia. We found that most studies in the field of innovation financing focus on the topics of capital structure (Bartoloni, 2013;Boyer & Blazy, 2014;Egger & Keuschnigg, 2015), use of (external/internal) sources of financing (Ayranci & Ayranci, 2016;Kerr & Nanda, 2015;Leiponen & Poczter, 2014;Poczter & Leiponen, 2016;Serrasqueiro et al, 2016), the availability of funding sources (Hall et al, 2016;Kaufmann & Tödtling, 2002), and restrictions on obtaining financing for innovation (Brancati, 2015;Canepa & Stoneman, 2008). Additionally, different models and theories such as agency cost theory (Jensen & Meckling, 1976), moral hazard theory (Holmstrom, 1989), the cost of capital (Mossin, 1966;Sharpe, 1964;Treynor, 1961), and different capital structure models (Berger & Udell, 1998;Modigliani & Miller, 1958;Myers & Majluf, 1984) have sought to inform the field of financing innovation.…”

“…In this context, the evidence does not show a consensus. Some studies conclude that innovative companies prefer to finance themselves with internal funds (Ayranci & Ayranci, 2016;Serrasqueiro et al, 2016) while other studies consider that companies prefer bank loans (Hsu et al, 2014;Leiponen & Poczter, 2014;Poczter & Leiponen, 2016). Other authors conclude that companies prefer to issue shares (Brown et al, 2013;Kim & Weisbach, 2008).…”