Innovation, Credit Constraints, and Trade Credit: Evidence from a Cross-Country Study
AbstractThis paper studies the relationship between trade credit and innovation. While trade credit is well researched in the finance literature, its link to innovation has been neglected in prior research. We argue that innovative small and medium-sized enterprises (SMEs) are more likely to use trade credit than non-innovative SMEs because of credit constraints and that business partners may have incentives to offer trade credit especially to innovative SMEs. The relationship between innovation and trade credit is empirically examined by using a sample of SMEs from 14 European countries. The results of an econometric analysis confirm a positive relationship between innovation and trade credit. In particular, SMEs with product innovations have a higher probability of using trade credit than other SMEs. Moreover, the results suggest that the effect of product innovation is only statistically significant if SMEs report that access to financing or cost of financing are obstacles for the operation and growth of their businesses. Hence, the results point to the relevance of trade credit as a source of short-term financing for innovative SMEs which are credit constrained.
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Bibliographic InfoPaper provided by Universitätsbibliothek Wuppertal, University Library in its series Schumpeter Discussion Papers with number sdp10005.
Date of creation: May 2010
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Web page: http://elpub.bib.uni-wuppertal.de
trade credit; innovation; credit constraints;
Find related papers by JEL classification:
- 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
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-04 (All new papers)
- NEP-CFN-2010-06-04 (Corporate Finance)
- NEP-ENT-2010-06-04 (Entrepreneurship)
- NEP-INO-2010-06-04 (Innovation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barbara Summers & Nicholas Wilson, 2003. "Trade credit and customer relationships," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(6-7), pages 439-455.
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