Financing R&D investments: an analysis on Italian manufacturing firms and their lending banks

We analyse the financing of R&D activity in Italy, using data at firm level that cover a wide range of sources of financing, such as internal funds, bank loans and access to financial markets. Our analysis shows the importance of relationship lending in fostering innovative activities. The relation between innovative firms and their main bank tends to be relatively long lasting, permitting the bank to reduce information asymmetry, while low credit concentration is a common feature among these firms, presumably allowing them to attenuate hold-up problems. Nonetheless, firms that rely on bonds and outside equity financing tend to have a higher propensity to invest more in R&D, suggesting that relationship lending is only a partial substitute for access to stock and bond markets.