Analysis of the Relationship between Entrepreneurship Sources of Finance and Product Innovation

This paper presents an empirical analysis of the relationship between entrepreneurial accesses to finance and product innovation. The objective of this paper is to explore which of the sources of entrepreneurial financing catalyse product innovation. The paper inclines on the prior work of schumpeter’s growth and innovation theory. The Logit regression statistics model was applied in the analysis of data and eight different sources of entrepreneurial finance (family finance, friends’ finance, own capital, employer’s finance, bank finance, government finance, venture capital and crowd funding) were examined independently to ascertain how each source affects product innovation. Data were collected from the Global Entrepreneurship Development Institute’s Index of global entrepreneurship. Findings from the analysis show that, crowd funding and venture capital sources are significantly and positively related to growth in entrepreneurship product innovation. Whilst the other variables did not prove to be significantly related, it is noted that bank finance and family finance sources showed a negative relationship with entrepreneurship product innovation. Although not significant at 5% significant level, the employer source of finance showed appreciable positive relationship with a p value of 0.09. Entrepreneurs and policy makers are made aware of the finance sources that may incubate entrepreneurial innovation. Recommendation is provided to improve government policy on entrepreneurship and to assist entrepreneurial product innovation financing strategy. It also offers an agenda for further academic debate and research. One of the few papers to examined up to eight sources of entrepreneurship financing independently on product innovation, and the first paper that uses data from global entrepreneurs from 39 countries.