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The financing of small innovative firms: The Italian case

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  • Silvia Magri

    ()
    (Banca dÂ’Italia)

Abstract

Small firms encounter difficulties in raising external finance owing to greater information problems. For small innovative firms, whose activity is more difficult to evaluate, the cost of external finance could be even higher. This paper examines special features of the financial structure of small innovative firms, compared with firms of similar size that do not innovate. The evidence shows that small innovators rely less on financial debt and more on internal financial resources; no important differences appear for large firms. This is consistent with the view that informational problems mainly affect small firms; large firms, even when they innovate, continue to rely on their traditional set of financial instruments. Another finding is that in small innovative firms investment is less sensitive to cash flow than in small non-innovative firms, probably because the high incidence of internal financial resources allows them more flexibility in deciding their investments. No comparable difference is found between innovative and non-innovative large firms.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 640.

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Date of creation: Sep 2007
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Handle: RePEc:bdi:wptemi:td_640_07

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Keywords: corporate finance; innovative firms; investment dynamics;

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Cited by:
  1. Segarra Blasco, Agustí, 1958- & Teruel, Mercedes, 2010. "Are small firms more sensitive to financial variables?," Working Papers 2072/151623, Universitat Rovira i Virgili, Department of Economics.
  2. Matteo Bugamelli & Luigi Cannari & Francesca Lotti & Silvia Magri, 2012. "The innovation gap of Italy’s production system: roots and possible solutions," Questioni di Economia e Finanza (Occasional Papers) 121, Bank of Italy, Economic Research and International Relations Area.
  3. Cristiano Antonelli & Alessandra Colombelli, 2011. "The generation and exploitation of technological change: market value and total factor productivity," The Journal of Technology Transfer, Springer, vol. 36(4), pages 353-382, August.
  4. Antonelli, Cristiano & Scellato, Giuseppe, 2014. "Firms Size and Directed Technological Change," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201417, University of Turin.
  5. A. Arrighetti & A. Ninni, 2009. "Firm size and growth opportunities: a survey," Economics Department Working Papers 2009-EP05, Department of Economics, Parma University (Italy).
  6. Giannetti, Caterina, 2012. "Relationship lending and firm innovativeness," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 762-781.
  7. Gerlach, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "SME Credit Constraints and Macroeconomic Effects," Papers WP467, Economic and Social Research Institute (ESRI).
  8. Filipe Silva & Carlos Carreira, 2012. "Do financial constraints threat the innovation process? Evidence from Portuguese firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(8), pages 701-736, November.
  9. Eleonora Bartoloni, 2013. "Capital structure and innovation: causality and determinants," Empirica, Springer, vol. 40(1), pages 111-151, February.
  10. Enrico Beretta & Silvia Del Prete, 2013. "Banking consolidation and bank-firm credit relationships: the role of geographical features and relationship characteristics," Temi di discussione (Economic working papers) 901, Bank of Italy, Economic Research and International Relations Area.

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