The financing of small innovative firms: The Italian case
AbstractSmall 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 InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 640.
Date of creation: Sep 2007
Date of revision:
corporate finance; innovative firms; investment dynamics;
Other versions of this item:
- Silvia Magri, 2009. "The financing of small innovative firms: the Italian case," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(2), pages 181-204.
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-20 (All new papers)
- NEP-ENT-2007-10-20 (Entrepreneurship)
- NEP-INO-2007-10-20 (Innovation)
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