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The purpose of this paper is to compare the effects of equity financing and debt financing on technological innovation, and prove that the enhancement of a financing system’s risk tolerance for technological innovation can enhance the innovation risk preference of enterprises and thus promote innovation.

This study is based on a transnational sample of 35 developed countries from 1996 to 2015, by using the panel econometric model to empirically examine the effects of two financing modes on innovation.

The findings showed that equity financing, which has higher risk tolerance, has a more positive impact on innovation than debt financing in terms of both economic uptrend and economic downtrend, and that government efficiency plays a significant role in supporting the performance of technological innovation.

The paper provides a research framework for examining how a financing system’s risk tolerance capacity affects the development of technological innovation through promoting risk preference among enterprises. This paper provides transnational and cross-cycle comparative evidence that equity financing with a strong risk tolerance capacity can better support technological innovation, even in periods of economic downtrend. Moreover, the importance of financing system’s risk tolerance capacity for innovation during economic crises is discussed.

The purpose of this paper is to investigate how firms in developing countries finance innovation. Notably, the study seeks to investigate whether innovative firms exhibit financing patterns different from those of non-innovative ones. It also examines the effect of financing sources on firm’s probability to innovate.

The study utilizes firm-level data from the World Bank Enterprise Survey. From 28 African countries, 11,173 firms have been included in the sample. A statistical t-test is used for two independent samples and logistic regression models.

The results show that innovative firms, specifically innovative small- and medium-size firms exhibit financing patterns different from non-innovative peers. Further analysis indicates that there is no statistically significant difference between the financing patterns of innovative and non-innovative large firms. In Africa, innovation is mostly financed using internal sources and bank finance. Equity finance and bank finance have shown a higher effect followed by internal finance, finance from non-bank financial institutions and trade credit finance on firms’ probability to innovate.

The management of innovative firms should reduce dependency on short-term and retained earning financing and increase the use of long-term instruments improve innovation performance.

A pending policy task for African leaders is to design and evaluate reforms to create a strong financial sector that willing to support the innovation process.

This study contributes to the existent literature on finance of innovation by examining how firms finance innovation activities in developing countries. This study provides evidence on how innovative firms exhibit financing patterns different from non-innovative ones from developing countries.

The purpose of this paper is to investigate the effect of financial constraints on innovation in developing countries. It also examines how the effect of financial constraints varies by sector and with main firm characteristics such as size and age.

The study utilizes matched firm-level data from two sources; the World Bank Enterprise Survey and the Innovation Follow-Up Survey. From 11 African countries, 4,720 firms have been included in the sample. A recursive bivariate probit model is used.

The result shows that financial constraints adversely affect a firm’s decision to engage in innovative activities and the likelihood to have product innovation and process innovation. The results point out that the extent of the adverse effect of financial constraints on innovation differs across the sectors, firm size and age groups. A firm’s innovation is also explained by firm size, R&D, cooperation/alliance, the human capital of the firm, staff training, public financial support and export. At last, the probability of encountering financial constraints is explained by firms’ ex ante financing structure, amount of collateral, accounting and auditing practices and group membership.

Managers should strengthen the internal and external financing capacity to reduce financing constraints and their adverse effect on innovation.

A pending policy task for African leaders is to design and evaluate reforms that reduce the adverse effects of financial constraints on innovation.

This study contributes to the existing literature on financing of innovation by examining how and to what extent financial constraints affect innovation across various sectors, size and age groups.

The purpose of this paper is to provide a better understanding of the determinants of small and medium-sized enterprises (SME) financing constraints and their impacts on investments in innovation. To explicate these factors, the authors use a general definition of innovation, distinguishing between product and process innovations, and highlight the role played by banking relationships.

On the basis of a literature review covering works specializing in innovation, financing constraints, and SME characteristics, a quantitative study is carried out in Spain, using a sample composed by 267 Spanish SMEs. Information was gathered by applying surveys addressed to the firm managers.

The findings reveal that financing constraints hinder innovation among Spanish SMEs functioning in hostile environments, though long-term banking relationships can moderate these financing constraints. The longer the duration of a firm’s banking relationship, the fewer financing constraints it faces, because the relationship significantly reduces information asymmetry.

To reduce financing constraints on their innovation, SMEs should establish long relationships and low debt concentration with their main bank. The more banks a firm works with, the greater its financing constraints. The findings have managerial implications, not just for firms but also for government policymakers and providers of consulting services.

This paper provides an in-depth analysis of the factors that affect innovation, along with insights into which financing constraints limit innovation during a severe recession.

Este trabajo profundiza en los determinantes de las restricciones financieras en las PYMEs y su impacto en la inversion en innovación durante una época de crisis económica. Para explicar estos factores, se ha utilizado una definición general de innovación distinguiendo las innovaciones en productos y procesos, y considerando el papel desempeñado por las relaciones bancarias.

Sobre la base de la revisión de la literature donde se encuentran trabajos centrados en innovación, restricciones financieras y características en la PYME, llevamos a cabo un análisis cuantitativo en España usando una muestra de 267 empresas españolas. La información se recopila a través de una encuesta al gerente de la empresa.

Los resultados muestran que las restricciones financieras perjudican la innovación en las PYMEs que se encuentran en entornos hostiles, aunque es destacable que las relaciones bancarias de larga duración pueden atenuar estos efectos. Cuanto más sólida, en términos de tiempo, sea la relación con la entidad financiera principal, menores restricciones financieras tendrá la empresa puesto que esta relación disminuye significativamente los problemas de información asimétrica entre los agentes.

Para reducir los efectos perversos de las restricciones financieras sobre la innovación en la PYME, la empresa debería construir relaciones bancarias de larga duración y mantener una baja concentración de las deudas con el banco principal. Por otra parte, cuanto mayor es el número de bancos con el que la empresa trabaja mayores son las restricciones financieras a las que se enfrenta cuando se plantea inversions en innovación. Estos resultados tienen importantes implicaciones tanto para los empresarios, como para los agentes políticos dinamizadores de la economía y los consultores de empresas.

Este trabajo realiza un análisis en profundidad de los factores que afectan a la innovación en la PYME, junto con ideas sobre cómo las restricciones financieras están afectando a la innovación durante una crisis económica severa.

The literature documents a shortage in the supply of external funding to small- and medium-sized enterprises (SMEs) in general and to innovative SMEs in particular. This study separates cognitive from financial constraints on innovative SMEs’ growth opportunities. Using data gathered through in-depth interviews with the CEOs of 115 SMEs, we reveal that over and above a problem with supply, there exists a twofold problem on the demand side. Specifically, we document that there is a tendency for these companies to avoid approaching external funding sources, especially ones that gear their investments toward innovation. Our results reveal a cognitive bias (over-pessimism) affecting the entrepreneurs’ (lack of) demand for external financing over and above other firm-specific factors. CEO tenure — our proxy for human and social capital — is significantly lower (higher) in firms that did (did not) pursue external funding. This finding may provide some support for our hypothesis regarding the cognitive bias and over-pessimism of the more veteran CEOs who have had negative experiences regarding recruiting external resources. The impact of this entrepreneurial cognition is shown to be economically detrimental to the enterprise. Nevertheless, the negative effects are not limited to the micro level, but have implications at the macro level as well, due to under-realization of the potential for employment, productivity, and growth of the firms comprising the vast majority of the economy.

The expectations surrounding innovation as the principal mean by which firms gain a sustainable advantage while simultaneously alleviating social problems are tremendous. However, in the process of developing innovation, many small entrepreneurs, SMEs, as well as large firms struggle to access the necessary finances in order to further develop their innovative projects. The purpose of this paper is to underline some of the most recent tools and practices used to finance novelty.

This paper synthetizes some thoughts about the financing of novelty and proposes a research agenda based on trends highlighted in the recent literature.

This paper pinpoints recent advances in finance applied to the field of innovation. In particular, this paper highlights both promising developments as well as the need for more research in this area in order to untangle the links between creativity and financial support, the financing of innovation in developing countries, accounting and evaluation of ideas.

The importance of developing innovation and easing access to resources has societal implications. The development of education around finance and entrepreneurship, as well as improving literacy of citizens in these fields could yield a more open view on innovation and financial supports in the future.

Financing novelty, evaluating projects and facing uncertainty are among the most difficult decisions investors take. This paper combines many dimensions of innovation and finance to construct an overview of current and future practices within both domains.

Successful innovation requires a significant financial commitment. Therefore, the purpose of this paper is to investigate the relation between internal and external financing and the degree of innovation in European firms.

An empirical investigation is carried out using a longitudinal data set including 146 large, quoted, European firms over ten years, resulting in 1,460 firm years.

The authors find that only firms in the energy sector will be more innovative when they are profitable. For the sectors of basic materials, manufacture and construction, services, financial and property services, and technology and telecommunications, profitability is negatively related to innovation. External financing in the form of debt reduces the focus on innovation in profitable firms.

The authors analyze the findings through the lens of evolutionary economics. The model is not valid for firms in the consumer-goods sector, which indicates a need for adapting the model to each sector. We conclude that the impact of profitability on innovation varies across sectors, with debt financing as a moderating factor.

To the best of authors’ knowledge, this is the first study that analyzes the internal and external financing and the degree of innovation in European firms on a longitudinal basis.

Today, the financing mechanisms to support small-and medium-sized enterprises (SMEs) development have been a subject of great interest and a challenge to policy makers as SMEs are regarded as an important sector contributing to economic growth and stability. This paper is concerned with the bank financing policies to support SME development in China. The purpose of this paper is to examine the governmental financing policies and the innovation financing system of China. The discussions are focused on the bank financing policies to support SME development in China.

This study is a qualitative research with the use of case study methodology (Eisenhardt, 1989; Yin, 2003). The research is focused on the policy perspectives of bank financing to support SME development in the case of China, the world’s fastest-growing economy. To explore the role of financial institutions and banks in SME financing in China, the research also derives evidence from a collection of documentary investigation. The research fieldwork and interviews were undertaken in Beijing and Shanghai, major financial centers in China, with the use of semi-structured questionnaire. The analyses are undertaken to answer the key questions of: What are the Chinese government’s strategies to support the development of SMEs? To what extent the government policies in bank financing can support SMEs and promote the development of an innovative economy?

The empirical study has shown that despite the introduction of the 12th Five-Year National Economic and Social Development Plan to support SMEs development, China still needs to improve regulatory policies in support of innovative businesses which would help its transition to an innovation-driven economy. The study provides lessons and policy guidelines to improve the competitiveness of SMEs in China. The insights from this study can also be applied to other developing and emerging economies attempting to understand the role of financing mechanisms in building an innovative economy.

The study has addressed the policy challenges to support SME development in China, a major Asian emerging country and one of the fastest-growing economies in the world (with averaged growth rate of 10 percent per annum). The empirical study of policy challenges was undertaken in Beijing and Shanghai, major financial centers in China. The study offers insights which can be applied to other developing and emerging economies attempting to understand the role of SME financing policies and mechanisms in building an innovative economy.

The purpose of this paper is to investigate how access to financing for incremental as well as radical innovation activities is affected by firm-specific structural and behavioral characteristics.

Deploying a two-stage Heckman probit model on survey data spanning the period 2000–2013 and covering 1,169 firms, this paper analyzes the effect of a firm’s engagement in incremental and radical innovation on its likelihood to get constrained in their access to external finance, and how this effect is moderated by the firm’s age and size.

In line with earlier research, it is confirmed that the type of innovation matters for the access to external finance, but in a more nuanced way than generally portrayed. While incremental innovation activities have little negative effect on the access to external finance, radical innovation activities tend to be penalized by capital markets. This effect appears to be particularly strong for small firms.

This paper provides nuanced insights into the interplay between types of firm-level innovation activities, structural characteristic and access to external finance.

Despite the increasing availability of financing programs for innovation, micro, small and medium-sized enterprises (MSMEs) often find it difficult to access credit for their projects. Among the reasons, the lack of the types of guarantees required by financial institutions stands out. Focused on this problem, in 2013, the Regional Bank for the Development of the Extreme South (BRDE) created a policy to stimulate innovation, making the required guarantees for financing operations of innovative companies more flexible: the BRDE Inova Program. This paper aims to analyze the guarantees used in the bank operations since the beginning of the program.

In the first stage of the research, the authors identified the guarantees used in each of the signed contracts, through a documentary survey. Next, semi-structured interviews showed the perceptions of the players involved in the innovation ecosystem of the state of Santa Catarina, regarding aspects related to the guarantees. Specifically, the authors investigated the following elements: strengths and limitations of the programs regarding access to credit for innovation; adequacy of existing guarantee mechanisms. To strengthen the conclusions, they used triangulated data collection in different stages.

The results showed that, on the one hand, the initiative helped BRDE to consolidate itself as the main financing agent of innovation in MSMEs; on the other hand, the need for traditional guarantees still plays a significant role for innovative MSMEs to access credit.

In addition to practical implications for the bank and other financing agents’ policies, this paper contributes to fill a gap in the literature on guarantee systems applied to the specificities of knowledge-intensive MSMEs.