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Innovation and SME finance: Evidence from developing countries

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  • Wellalage, Nirosha Hewa
  • Fernandez, Viviana

Abstract

This paper explores the relationship between firm-level innovation and external finance for small and medium enterprises (SMEs). Our sample consists of 13,430 firms from Eastern Europe and Central Asian countries. A propensity score matching approach reports a positive relationship between formal finance and product and process innovation, which is greater for early-stage SMEs than for mature counterparts. However, informal finance has more significant impact on mature firms' product innovation. Our empirical evidence highlights policy implications for countries desiring to enhance the innovation of their SMEs by improving the external finance of these SMEs.

Suggested Citation

  • Wellalage, Nirosha Hewa & Fernandez, Viviana, 2019. "Innovation and SME finance: Evidence from developing countries," International Review of Financial Analysis, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finana:v:66:y:2019:i:c:s1057521919301644
    DOI: 10.1016/j.irfa.2019.06.009
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    More about this item

    Keywords

    Developing countries; External finance; Innovation; SMEs; Propensity score matching methods;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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