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Article
Publication date: 18 October 2019

Ling Zhang, Sheng Zhang and Yingyuan Guo

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…

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Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

Baltic Journal of Management, vol. 14 no. 4
Type: Research Article
ISSN: 1746-5265

Keywords

Article
Publication date: 5 June 2019

Misraku Molla Ayalew, Zhang Xianzhi and Demis Hailegebreal Hailu

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

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Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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.

Social implications

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.

Originality/value

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.

Details

European Journal of Innovation Management, vol. 23 no. 3
Type: Research Article
ISSN: 1460-1060

Keywords

Article
Publication date: 24 October 2019

Misraku Molla Ayalew and Zhang Xianzhi

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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

Social implications

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

Originality/value

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.

Details

Asian Review of Accounting, vol. 28 no. 3
Type: Research Article
ISSN: 1321-7348

Keywords

Book part
Publication date: 19 August 2017

Raphael Bar-El, Ilanit Gavious, Dan Kaufmann and Dafna Schwartz

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…

Abstract

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.

Details

Human Capital and Assets in the Networked World
Type: Book
ISBN: 978-1-78714-828-4

Keywords

Article
Publication date: 8 April 2022

Yilin Zhang, Changyuan Gao and Jing Wang

This study aims to explore the relationship between financing constraints and the innovation performance of Internet enterprises in the cross-border innovation cooperation…

Abstract

Purpose

This study aims to explore the relationship between financing constraints and the innovation performance of Internet enterprises in the cross-border innovation cooperation network. The study also analyzes the moderating effect of the location of the cross-border innovation cooperation network.

Design/methodology/approach

The authors selected patent data, related transaction data and other data of A-share listed companies on Shanghai and Shenzhen stock exchanges from 2014 to 2019. The generalized moment estimation method of instrumental variables (IV-GMM) method was used to analyze the relationship between financing constraints and the innovation performance of Internet firms and the moderating effect of the cross-border innovation cooperation network location. The threshold value of the moderating effect of the network structure hole was calculated with the threshold model.

Findings

The empirical results show a significant inverted U-shaped relationship between financing constraints and the innovation performance in the cross-border innovation cooperation network of Internet enterprises. Network centrality positively moderates this relationship. There is a threshold for the adjustment effect of network-structural holes, and the adjustment intensity of structural holes changes before and after the threshold.

Originality/value

This study provides a new perspective for Internet firms in innovation cooperation networks to alleviate the negative impact of financing constraints on innovation performance. The inverted U-shaped relationship between financing constraints and the innovation performance of Internet enterprises is in two stages. The moderating range of network centrality and the structural hole besides the threshold of the moderating effect of a structural hole are detailed.

Details

European Journal of Innovation Management, vol. 26 no. 6
Type: Research Article
ISSN: 1460-1060

Keywords

Article
Publication date: 10 May 2019

Petra A. Nylund, Nuria Arimany-Serrat, Xavier Ferras-Hernandez, Eric Viardot, Henry Boateng and Alexander Brem

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

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Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Originality/value

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.

Details

European Journal of Innovation Management, vol. 23 no. 2
Type: Research Article
ISSN: 1460-1060

Keywords

Article
Publication date: 4 October 2019

Ulrike Stefani, Francesco Schiavone, Blandine Laperche and Thierry Burger-Helmchen

The expectations surrounding innovation as the principal mean by which firms gain a sustainable advantage while simultaneously alleviating social problems are tremendous. However…

Abstract

Purpose

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.

Design/methodology/approach

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

Findings

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.

Social implications

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.

Originality/value

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.

Details

European Journal of Innovation Management, vol. 23 no. 2
Type: Research Article
ISSN: 1460-1060

Keywords

Article
Publication date: 30 April 2021

Hongbin Huang, Yani Sun and Qingling Chu

The purpose of this paper is to investigate to what extent the amount, information source and the content of the microblog information disclosure of listed companies could impact…

Abstract

Purpose

The purpose of this paper is to investigate to what extent the amount, information source and the content of the microblog information disclosure of listed companies could impact on innovation from the perspective of financing constraints.

Design/methodology/approach

The propensity score matching (PSM) and two-stage least square (2SLS) are used in estimations to deal with the endogeneity problem.

Findings

Evidence shows that the amount of we-media information disclosure significantly drives the innovation of enterprises. The mechanism is that we-media information disclosure drives the innovation by easing the financing constraints and bringing funds to the R&D activities. Further research shows that only the original information can drive the innovation. In particular, the R&D information promotes the R&D input and innovation output more significantly.

Practical implications

The conclusion of this paper provides a reference for the listed companies to drive innovation with the help of we-media information disclosure, a new solution for the small and medium-sized listed companies in China which have difficulty in carrying out innovation activities due to financing constrains and also provides useful practical enlightenment for the government and the capital market regulatory authorities to issue relevant policies to regulate we-media information disclosure.

Originality/value

This paper introduces a new information disclosure channel--we-media into the research on influencing factors of innovation and discusses the influence of the amount, different sources and disclosure contents from we-media on enterprise innovation, which enriches the existing research on enterprise innovation influencing factors, providing a new perspective for driving enterprises to innovate.

Details

China Finance Review International, vol. 12 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 9 May 2023

David Audretsch, Maksim Belitski and Candida Brush

Research on financing for entrepreneurship has consolidated over the last decade. However, one question remains unanswered: how does the combination of external finance, such as…

Abstract

Purpose

Research on financing for entrepreneurship has consolidated over the last decade. However, one question remains unanswered: how does the combination of external finance, such as equity and debt capital, and internal finance, such as working capital, affect the likelihood of grant funding over time? The purpose of this study is to analyse the relationship between different sources of financing and firms' ability to fundraise via innovation grants and to examine the role of female chief executive officer (CEO) in this relationship. Unlike equity and debt funding, innovation grants manifest a form of innovation acknowledgement and visibility, recognition of potential commercialization of inovation.

Design/methodology/approach

The authors use firm-level financial data for 3,034 high-growth firms observed in 2015, 2017 and 2019 across 35 emerging sectors in the United Kingdom (UK) to test the factors affecting the propensity of high-growth firms to secure an innovation grant as a main source of fundraising for innovation during the early stages of product commercialization.

Findings

The results do not confirm gender bias for innovation fundraising in new industries. This contrasts with prior research in the field which has demonstrated that access to finance is gender-biased. However, the role of CEO gender is important as it moderates the relationship between the sources of funding and the likelihood of accessing the grant funding.

Research limitations/implications

This study does not analyse psychological or neurological factors that could determine the intrinsic qualities of male and female CEOs when making high-risk decisions under conditions of uncertainty related to innovation. Direct gender bias with regards to access to innovation grants could not be assumed. This study offers important policy implications and explains how firms in new industries can increase their likelihood of accessing a grant and how CEO gender can moderate the relationship between availability of internal and external funding and securing a new grant.

Social implications

This study implicates and empirically demonstrates that gender bias does not apply in fundraising for innovation in new industries. As female CEOs represent various firms in different sectors, this may be an important signal for investors in new product development and innovation policies targeting gender bias and inclusion.

Originality/value

The authors draw on female entrepreneurship and feminist literature to demonstrate how various sources of financing and gender change the likelihood of grant funding in both the short and long run. This is the first empirical study which aims to explain how various internal and external sources of finance change the propensity of securing an innovation grant in new industries.

Details

International Journal of Entrepreneurial Behavior & Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1355-2554

Keywords

Article
Publication date: 10 May 2023

Hua Song, Yudong Yang and Zheng Tao

In recent years, the application of blockchain in enterprise financing has become a hot topic in academic research. This study aims to review the existing literature, construct a…

Abstract

Purpose

In recent years, the application of blockchain in enterprise financing has become a hot topic in academic research. This study aims to review the existing literature, construct a knowledge framework for this research topic and propose an agenda for future research.

Design/methodology/approach

Based on 181 papers published from 2016 to 2020 in core journal databases in China and abroad, this study used bibliometric tools to identify and analyze an overview of literature publications, research hotspot trends and research theme clustering. This study also qualitatively analyzes literature from the dimensions of enabling mechanisms, multitechnology synergy, challenges, theoretical perspectives and research methods.

Findings

This study presents the research progress of blockchain applications in direct financing, bank credit, supply chain finance and other financing modes and analyzes the similarities and differences between domestic and international literature. This study also reveals enabling mechanisms of blockchain in enterprise financing, reflected as information quality improvement (data elements), trust mechanism innovation (business process) and collaboration structure enhancement (network structure). The study found several challenges (e.g. technological uncertainty, data security and organizational change) and trends (e.g. integrated innovation of multiple digital technologies). Additionally, the authors identified several gaps and opportunities for further research.

Research limitations/implications

This study adopts a strict strategy of selecting search terms when retrieving the literature, leading to the exclusion of certain papers on this topic.

Practical implications

This study provides valuable insights into the innovative development of enterprise financing modes enabled by blockchain and emphasizes that managers should clarify the applicable boundaries and necessary conditions of blockchain innovation in different financing scenarios to match technological innovation with industrial expectations.

Originality/value

This study constructs a knowledge framework on this topic based on a comprehensive review of existing research and proposes several important issues for future research based on the identified research gaps.

Details

Nankai Business Review International, vol. 14 no. 3
Type: Research Article
ISSN: 2040-8749

Keywords

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